Merck, Schering-Plough plan multi-tranche bond offering to pay down loans

By Jennifer Chiou

New York, March 13 - Merck & Co., Inc. and Schering-Plough Corp. announced a multi-tranche bond offering, the proceeds of which will go toward the planned terming out of a $3 billion bridge facility and the reduction of a new $5.5 billion revolving credit facility.

Proceeds from an asset sale will also be applied to the committed acquisition financing.

As previously reported, Merck announced on Monday that it will acquire Schering-Plough in a stock-and-cash transaction valued at $41.1 billion, or about $23.61 per share.

Schering-Plough shareholders will receive 0.5767 of a share of Merck and $10.50 in cash for each share of Schering-Plough. Each Merck share will automatically become a share of the combined company, a previous joint news release from the companies said.

The offer price is a premium of about 34% to Schering-Plough shares based on the closing price of the company's stock on March 6.

Merck already said the transaction will be structured as a reverse merger, with Schering-Plough remaining as the surviving public corporation and renamed Merck.

Total consideration will be comprised of about 44% cash and 56% stock.

The cash portion will be financed through a combination of $9.8 billion from existing cash balances and $8.5 billion from committed financing to be provided by J.P. Morgan, according to Merck.

The boards of directors of both pharmaceutical companies have approved the transaction, which is expected to close in the fourth quarter of 2009, subject to shareholder approval.

Upon closing, Merck shareholders will own about 68% of the combined company and Schering-Plough shareholders the remaining 32%.

Richard T. Clark, Merck chairman, president and chief executive officer, will lead the combined company out of Merck's Whitehouse Station, N.J., headquarters. Schering-Plough is based in Kenilworth, N.J.

Three representatives from Schering-Plough's board of directors will join the board of the combined company, Merck said.

According to Merck, a "substantial majority" of Schering-Plough employees are expected to remain with the combined company.

"The combined company will benefit from a formidable research and development pipeline, a significantly broader portfolio of medicines and an expanded presence in key international markets, particularly in high-growth emerging markets," Clark said in the prior release.

J.P. Morgan advised Merck, and Schering-Plough was advised by Goldman, Sachs & Co. and Morgan Stanley.

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