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March 10, 2009
Merck/Schering-Plough: Waiting for J&J To Raise Their Hand
One issue in the Merck/Schering Plough deal that's come up since it was announced is Johnson & Johnson's role in it. They have a deal on Remicade ( ) and its follow-up golimumab, which provides significant revenue to S-P (who have the non-US rights). J&J is no doubt weighing their options today, because Merck and Schering-Plough structured their deal, by all appearances, specifically to avoid triggering some provisions that would make these rights revert to J&J.
Over at the S-P watchdog site Shearlings Got Plowed, we find this, referring to this partnership agreement which you can find at the SEC. Scrolling down to section 8.2, one finds (emphasis added):
(c) Change in Control. If either party is acquired by a third
party or otherwise comes under Control (as defined in Section 1.4 above) of a
third party, it will promptly notify the other party not subject to such change
of control. The party not subject to such change of control will have the right,
however not later than thirty (30) days from such notification, to notify in
writing the party subject to the change of Control of the termination of the
Agreement taking effect immediately. As used herein "Change of Control" shall
mean (i) any merger, reorganization, consolidation or combination in which a
party to this Agreement is not the surviving corporation; or (ii) any "person"
(within the meaning of Section 13(d) and Section 14(d)(2) of the Securities
Exchange Act of 1934), excluding a party's Affiliates, is or becomes the
beneficial owner, directly or indirectly, of securities of the party
representing more than fifty percent (50%) of either (A) the then-outstanding
shares of common stock of the party or (B) the combined voting power of the
party's then-outstanding voting securities; or (iii) if individuals who as of
the Effective Date constitute the Board of Directors of the party (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of the party; provided, however, that any individual becoming
a director subsequent to the Effective Date whose election, or nomination for
election by the party's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other than the
Board; or (iv) approval by the shareholders of a party of a complete liquidation
or the complete dissolution of such party.
That's why the deal is, on paper, Schering-Plough acquiring Merck (of all things). S-P will be the "surviving corporation", you see, so J&J can just go away and keep splitting all that anti-TNF antibody revenue. Somehow I don't think that this is going to go that smoothly. Like "Condor" over at the Shearlings site, I don't see how that language about the board of directors can apply to the new board of the merged company, since Merck was clearly not a party to this agreement. It has to apply, I'd think, to the current Schering-Plough board, which will cease to exist in its present form. No, we're surely going to see some response from J&J, and very soon. They won't walk away from this one.
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