UPDATE: Merck Sees High-Single-Digit EPS Growth Through 2013
(Adds details and background throughout; updates stock price.)
By Peter Loftus and Tess Stynes
Of DOW JONES NEWSWIRES
Merck & Co. (MRK) reiterated its financial targets following the completion of
its acquisition of Schering-Plough on Tuesday, including compound annual
earnings growth in the high-single digits on a percentage basis from this year
until 2013 and substantial cost savings.
But the drug maker didn't immediately disclose additional details about its
planned 15% reduction in its 106,000-person work force, or any facility
closures. A spokeswoman said it was premature to discuss specifics. Merck
reiterated its previous target of savings of $3.5 billion annually beyond 2011.
Merck shares jumped $1.44, or 4.7%, to $32.11.
J.P. Morgan resumed coverage of the shares with an overweight rating and
December 2010 price target of $40, saying the company has addressed its biggest
challenges--upcoming drug patent expirations and thin research assets.
Also, shares of acquirers often rise after a deal closes due to unwinding of
arbitrage trading bets.
"The integration of the two companies can now commence," said Merck
spokeswoman Amy Rose.
The deal's closure follows rival Pfizer Inc.'s (PFE) recent closing of its
acquisition of Wyeth. Both deals, announced early this year, came as the world's
biggest pharmaceutical companies face a litany of pressures--from research
pipelines that likely won't be able to offset the companies' blockbusters that
will lose patent protection in the coming years, to the potential of increased
government pressure to lower prices.
Merck on Wednesday said the projected earnings growth rate was based on its
prior 2009 earnings guidance of $3.20 to $3.30 a share. Merck also is targeting
free cash flow of about $15 billion for 2013. The company expects to generate
more than half its revenue outside the U.S. The company reiterated that it
expects the Schering merger to add modestly to earnings next year.
Merck will continue to be headquartered in Whitehouse Station, N.J. The
company said Schering's former headquarters in Kenilworth, N.J., will remain an
"important" site, as will Merck's Rahway, N.J., site. All other sites will
continue to operate at this time.
Merck previously announced its new leadership team, which includes some
Schering executives.
Merck also said it would simplify its trade-name branding, calling itself "
Merck" in the U.S. and Canada and "MSD" everywhere else. Merck previously used
different variations in some countries, such as Merck Sharp & Dohme.
Some analysts remain cautious about Merck's outlook. Leerink Swann has a "
market perform" rating, citing near-term uncertainties such as an upcoming
clinical study that's expected to have a negative result for Merck's cholesterol
drugs, and an ongoing dispute with Johnson & Johnson (JNJ) over the rights to
arthritis drugs.
-Peter Loftus and Tess Stynes; Dow Jones Newswires; 215-656-8289;
peter.loftus@dowjones.com
(END) Dow Jones Newswires
11-04-091103ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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