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Merck Completes $6 Billion Merger With Medco

November 18, 1993 GMT

TRENTON, N.J. (AP) _ Merck & Co., the world’s largest pharmaceutical maker, completed a $6 billion deal Thursday to acquire prescription drug distributor Medco Containment Services.

Medco stockholders voted Thursday morning to approve the merger, which was cleared by the Federal Trade Commission earlier this month. The deal makes Medco, headquartered in Montvale, N.J., a subsidiary of Readington Township, N.J-based Merck.

The two companies have combined annual revenues exceeding $12 billion.

Industry analysts say the merger, which gives Merck a 15-percent share of the nation’s drug business, will force competitors into mergers and set off drug-price wars.

″Merck is redefining the way they’re going to go about doing business in the drug industry,″ said Richard R. Vietor, an analyst with Merrill Lynch Research. ″It will increase the need for all pharmaceutical manufacturers to justify the value of their products in terms of their cost-benefit analysis.″

Analyst Hemant K. Shah of HKS & Co. in Warren, N.J. said Merck ″could create a downward spiral in prices″ industry-wide by cutting its prices to sell more Merck drugs through Medco’s mail-order operations.

Merck spokesman John Doorley declined to discuss pricing policies, but said Medco would favor Merck’s drugs in filling customer orders ″when Merck products are the best medicines″ in terms of both cost and effectiveness.

Merck paid $2.4 billion in cash for 40 percent of Medco’s stock. It swapped 1.214 Merck shares for each of the remaining 60 percent of Medco shares, a transaction valued at $3.6 billion.

Medco shareholders opposed to the merger sued to block the deal. The suit was settled recently, but the settlement still must be formally approved in court, Doorley said. Federal Trade Commission declined to challenge the deal.

″There are no regulatory or government impediments of any kind possible now,″ he added.

Merck, which earned $2.4 billion on sales of $9.7 billion last year, employs about 36,000 people, half of them in the United States.

Medco earned $141 million on revenue of $2.6 billion for in its 1993 fiscal year, which ended June 30. Medco has about 9,000 employees.