Schering-Plough and Company X?

May 21, 2009

Let the guessing games begin! Exactly who is Company X and how serious were they about bidding on Schering-Plough (SGP) several months before the company announced its plans to merge with Merck (MRK)? In the S-4 that Schering-Plough filed late yesterday they say this about Company X:

Also during the January 9, 2009 Schering-Plough board update, Schering-Plough’s financial advisors noted that another company (Company X) potentially had the financial and operational capacity to complete a strategic transaction with Schering-Plough and that, other than Merck, Company X was, in their view, the entity most likely to be interested in and capable of completing a strategic transaction with Schering-Plough. The board determined that it would be appropriate to better understand Company X’s interest before making a determination as to Schering-Plough’s response to the approach by Merck. Accordingly, the board asked Mr. Hassan to contact Company X to understand the interest of Company X and to assess any such interest in light of the approach by Merck.

There’s a lot more about the back and forth between Company X and Schering-Plough that went on during January 2009. Indeed, pages 51-53 of the filing are chock-full of details. On Feb. 5, the negotiations fell apart when the CEO of Company X called Schering-Plough CEO Fred Hassan to say that the company “had determined not to proceed with a proposal at that time.”

So who was Company X? Could it have been Johnson & Johnson (JNJ), which is tussling with Schering-Plough over the drug Remicade, which according to Bloomberg, generated $3.75 billion in revenues for J&J and $2.12 billion for Schering-Plough last year? There’s a big hint deeper in the filing when Schering-Plough notes that its advisors on the merger — Goldman Sachs (GS) and Morgan Stanley (MS) — did a presentation to the company’s board and said that only Merck and Company X “were interested and capable of completing a business combination.” Pfizer (PFE) might have been a contender, but its announcement two weeks earlier that it planned to acquire Wyeth (WYE) no doubt took it out of the running.

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