Merck awaits end of reviews; IPC buyout may hinge on weather; FTC clears Watson Wyatt merger

By Cristal Cody

Tupelo, Miss., Aug. 7 - Merck & Co., Inc. and Schering-Plough Corp. expect regulators in the United States and overseas to approve the drug makers' $41.1 billion merger by the fourth quarter, Merck told Prospect News on Friday.

Also on Friday, the U.S. Federal Trade Commission said it cleared consulting firm Watson Wyatt Worldwide, Inc.'s $3.5 billion stock acquisition of rival Towers, Perrin, Forster & Crosby, Inc., but at least one market observer remains unsure about the combination.

Meanwhile, shareholders of Validus Holdings, Ltd. and IPC Holdings, Ltd. are expected to approve the merger of the Bermuda reinsurance companies on Sept. 4 - unless a hurricane hits, a market source said Friday.

On Wall Street, equities rallied for a positive close on Friday.

The Dow Jones Industrial Average moved up 113.81 points, or 1.23%, to 9,370.07.

Investors also pushed the Nasdaq Composite index above 2,000.

The Nasdaq added 27.09 points, or 1.37%, to end at 2,000.25, and the Standard & Poor's 500 index gained 13.40 points, or 1.34%, to close at 1,010.48 on Friday.

Vote to sell

Shareholders of Merck and Schering-Plough approved the acquisition in meetings on Friday.

More than 99% of Merck and Schering-Plough shares were cast in favor of the merger, the companies said in statements.

The deal still needs regulatory approval from authorities in the United States, the European Commission and regulators in Brazil and Japan, Merck said.

"We'll be working toward a close in the fourth quarter," Merck spokesman Amy Rose told Prospect News on Friday.

To allay some regulatory concerns, Merck in late July agreed to sell its 50% partnership in pet care business Merial to the other stakeholder, Sanofi-Aventis SA, for $4 billion.

Whitehouse Station, N.J.-based Merck is a global pharmaceutical company, while Kenilworth, N.J.-based Schering-Plough produces products in prescription medicines, animal health vaccines and consumer health products.

Under the terms of the agreement, Schering-Plough shareholders will receive 0.5767 of a share of new Merck stock and $10.50 in cash for each share of Schering-Plough. For Merck shareholders, existing Merck share certificates will automatically represent an equal number of shares in the new Merck after completion of the merger.

Schering-Plough's stock added 57 cents, or 2.19%, to close at $26.62, while Merck shares closed up 74 cents, or 2.52%, at $30.12 on Friday.

Betting on a storm

Validus Holdings said it expects to close on its $1.7 billion acquisition of IPC Holdings soon after shareholders vote on the deal to combine the companies.

"We expect the deal to close on Sept. 9," a market source said Friday. "The current gross spread of 1.7% (or 54 cents a share) implies a probability of 19% for the deal breaking, which we believe is excessive."

Shareholders of both companies are expected to approve the offer, but a major hurricane that cuts away at the insurers' profits could sway the outcome, the source said.

"The probability of a large enough hurricane hitting the gulf and changing the deal's financial structure, in our view, is lower [and is] according to VR, once in a 100-year event," the source said.

Pembroke, Bermuda-based IPC provides property catastrophe reinsurance to personal and commercial property insurers for hurricanes, storms, earthquakes and other disasters. Validus, based in Hamilton, Bermuda, provides reinsurance and insurance coverage in the property, marine and special lines markets.

Validus finally secured IPC's board approval for a takeover on July 9 with the offer of $7.50 in cash and 0.9727 of a share of Validus for each IPC share.

IPC's stock inched up a penny, or 0.03%, to close at $30.60 on Friday.

Shares of Validus rose 11 cents, or 0.45%, to $24.40.

On the fence on Wyatt combo

Arlington, Va.-based Watson Wyatt's proposal to merge with privately held Stamford, Conn.-based Towers Perrin would create the world's largest human resources consulting firm.

The FTC cleared the deal without comment on Friday, according to a list the agency released.

Shlomo Rosenbaum, an analyst with Stifel Nicolaus & Co., Inc., told Prospect News on Friday that his "latest thinking" hasn't changed since the transaction was announced in June.

"The deal is dilutive for two-three years, and we are on the fence with regard to revenue," Rosenbaum said in a research note in June. "We view this deal as an effort by two leading companies in a mature market to try to improve growth where the long-term trends for the core pension consulting business are negative."

Under the terms, shareholders of Watson Wyatt would receive 50% of the shares in the combined company, while Towers Perrin shareholders and employees would retain the other half of the stock.

Shares of Watson Wyatt climbed $2.07, or 5.50%, to close at $39.70 on Friday.

Mentioned in this article:

IPC Holdings, Ltd. Nasdaq: IPCR

Merck & Co., Inc. NYSE: MRK

Schering-Plough Corp. NYSE: SGP

Validus Holdings, Ltd. NYSE: VR

Watson Wyatt Worldwide, Inc. NYSE: WW

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