Schering and Merck?

Schering-Plough (SGP ) is looking puny: Its stock is one of the big losers among pharmaceuticals--down 33% this year. That has sparked speculation that Schering might become buyout bait. Rumors swirled when shares tumbled to 37, down from 56 in mid-February, after Schering disclosed that the Food & Drug Administration was looking into quality-control problems at its New Jersey and Puerto Rico plants.

CEO Richard Kogan insists Schering isn't for sale. But whispers persist: Drug giant Merck (MRK ), said to have talked to Schering about a buyout in mid-1999 and gotten a rebuff, approached Schering again after the FDA problems emerged, says an investment banker close to the industry. Schering has again turned Merck down, says this pro. But Merck isn't giving up: The banker says Merck has proposed a buyout price in stock of 65 a share, or $91 billion in total. He sees Schering ultimately coming around. Merck has a market cap of $176 billion, vs. Schering's $55 billion. Already, Merck and Schering have joint ventures in developing certain respiratory and cholesterol-reduction drugs.

Analyst Steven Tighe of Merrill Lynch figures Schering could be worth $42 to $72 a share, depending on whether the buyer is a financial group or a drugmaker. The price will vary, he says, depending on the buyer's revenues and Schering's earnings from 2001 to 2003. Tighe says a drug company could save a lot in buying Schering because it could cut costs on operations overlap. Such synergy, he says, could range from 3% to 8% of their combined sales. But both Schering and Merck declined comment as a matter of policy.

By Gene G. Marcial

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