Merck to Buy Back $5 Billion of Its Shares From Goldman

Merck & Co. (MRK), the second-biggest U.S. drugmaker, reached a deal to repurchase $5 billion of its shares from Goldman Sachs Group Inc. (GS) as part of a buyback program announced earlier this month.

Merck will make an initial purchase of 99.5 million shares based on current market prices, according to a statement today from the Whitehouse Station, New Jersey-based company. The transaction is expected to be completed by Nov. 25.

Merck, facing generic competition to what was once its best-selling drug, earlier this month cut its full-year guidance in anticipation of lower sales and said it would buy back as much as $15 billion in shares. The move is a good use of cash and may help appease investors who have lost 22 percent of their value in the stock over the past six years, said Bill Smead, chief investment officer at Smead Capital Management.

“The stock has been down so long,” Smead, whose firm owns shares, said in a telephone interview. “There is nothing else to do with the cash if you are already expensing your R&D and already paying a good dividend. If you have extra cash there is really nothing to do with that than a share buyback unless you are going to make an acquisition.”

Merck sold bonds last week to fund some of the share repurchases, which the company had said were to reach about $7.5 billion over 12 months.

“This accelerated share repurchase demonstrates our commitment to delivering increased value to shareholders in the short term, while continuing to invest in the important opportunities that will drive our long-term growth,” Merck Chief Executive Officer Kenneth Frazier said in the statement.

Merck rose 4.7 percent to $47.33 at the close in New York time prior to the announcement. The drugmaker has gained 26 percent in the past 12 months.

Merck has been struggling to boost profit since its once top-selling asthma medicine Singulair began facing generic competition in August and research setbacks have delayed new products.

To contact the reporter on this story: Shannon Pettypiece in New York at spettypiece@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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