Ahead of the deal: Merck and Schering-Plough set to vote on merger Friday

On Friday, shareholders for Merck & Co., Inc. (MRK) and Schering-Plough Corp. (SGP) set to vote on a $41 billion merger. In the meantime, the two companies appear to be doing some house cleaning.

One of the first orders when such a deal goes through is to shake up top management, with many entrenched brahmins losing their position in the name of synergies, cost savings and so on. It is already known that Merck CEO Richard Clark plans to keep the top job, but he has also stated that he will announce a new structure and leadership team by late August.
Still, most analysts were taken by surprise on Monday when the head of Merck's vaccine unit, Margie McGlynn, announced her plans to "retire" effective November 1. McGlynn, who was viewed as a possible candidate for the CEO job is leaving to pursue "personal and professional aspirations" -- whatever that means. Most newspapers and blogs called it a top-management shake up ahead of the merger, but Mike Huckman of CNBC isn't so sure.

McGlynn oversaw several launches, including Gardasil, Merck's top vaccine for sexually transmitted diseases and cervical cancer. However, she may have also been blamed for the recent decline in sales of the vaccine, which couldn't hold up to GlaxoSmithKline's (GSK) competitor, Cervarix. Huckman adds that the company had serious manufacturing and supply issues with another vaccine.

Regardless of the reason for McGlynn's departure, it is likely that more heads will roll ahead and after the merger, especially given the size of the two companies and the deal. To combine operations well and minimize disruption, it would be better to decide on these matters sooner rather than later.

Meanwhile, it was also announced on Monday that Merck reached a $65 million settlement with providers who purchased its Vioxx pain killer; the company will also pay $15 million to cover legal fees. Merck booked the $80 million charge in the second quarter. While this could also be seen as an attempt to clean house before the Schering deal, Merck still faces hundreds of lawsuits over Vioxx, which was pulled from the market in 2004 because it increased the risk of heart attack and stroke.

Another important order of business is Schering's rheumatoid arthritis drug Remicade. Johnson & Johnson (JNJ) has U.S. rights to sales of Remicade. As the AP reported, "J&J recently started an arbitration proceeding over whether the change in control of Schering-Plough entitles J&J to all revenue from the drugs." It will be interesting to see the results of this arbitration given the amount of revenues in question.

No doubt, this merger is going to be complicated, as mega-mergers usually are. But if the two companies can work this out, they could definitely benefit from each other's strengths.

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