The Work

March 9, 2009 11:57 AM

Fried Frank, Wachtell, Skadden on Another Huge Pharma Merger

Posted by Zach Lowe

In the second megamerger of the year so far, Merck is acquiring one of its chief U.S. rivals, Schering-Plough, in a $41 billion deal finalized over the weekend. 

The deal has brought a welcome chunk of work for two firms that have long been go-to M&A counsel for the pharma biggies: Fried, Frank, Harris, Shriver & Jacobson for Merck and Wachtell, Lipton, Rosen & Katz for Schering, according to statements from both firms.

Lead M&A and corporate partners on the deal either declined to comment through firm spokespersons or did not return messages seeking comment. Skadden, Arps, Slate, Meagher & Flom advised Schering on tax issues, the firm said. Paul Oosterhuis, who came to Skadden in 1989, has been Schering's go-to tax lawyer since the mid-1980s, he says. Schering came to him because of his experience representing tech giants such as Hewlett-Packard, which--like Schering--had major operations in Puerto Rico and needed expert advice on tax credits for research and development, Oosterhuis says.

The deal comes roughly two months after Pfizer's $68 billion acquisition of Wyeth and is the latest signal that pharmaceutical companies facing patent expirations on key drugs are willing to spend big to acquire rivals with deeper pipelines, according to Bloomberg and the New York Times.

In Merck's case, revenues from two major cholesterol treatment drugs (Zetia and Vytorin) fell by more than a third last year (Merck already had split those revenues with Schering), and generic drugs will begin competing with Merck mainstays over the next five years.

Schering has a promising blood clot treatment in the works and a strong seller in Remicade, a drug that treats rheumatoid arthritis, Bloomberg says.

The deal is expected to close in the fourth quarter. The combined company will be headed by Merck's chief executive Richard Clark and is expected to generate about $42 billion in annual revenue, Bloomberg says.

Schering shareholders will receive 0.5767 Merck shares and $10.50 in cash for each share of Schering stock. Merck is financing the deal with $9.8 billion in reserves and an $8.5 billion loan from JPMorgan Chase. 

David Shine and Philip Richter led the Fried Frank team representing Merck along with partners F. William Reindel and Damian Ridealgh, who handled the financing. 

The firm has represented Merck since at least the early 1990s, and advised Merck in its $1 billion acquisition of Sirna Therapeutics in 2006 and a $350 million deal for San Diego-based NovaCardia Inc. in 2007.

Wachtell has a long relationship with Schering. Work on this deal was led by name partner Martin Lipton and corporate partner Andrew Brownstein. The firm advised Schering on its $14 billion acquisition of Netherlands-based Organon BioSciences NV in 2007.

Other Wachtell partners on the deal included corporate partner Gavin Solotar, antitrust partners Michael Byowitz and David Schwartz, executive compensation specialist Jeremy Goldstein and tax partner Jodi Schwartz.

The Skadden team doing tax work for Schering also included partners Hal Hicks, Mitchell Solomon and Eric Sensenbrenner, the firm said.

The bulk of the tax work in any global M&A deal comes after the acquisition closes, when the companies have to integrate units around the world without needlessly triggering new taxes, Oosterhuis says. Skadden lawyers are not sure yet whether they will play a role in that process, he says.

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