...MERCK ACQUISITION OF MEDCO Thomas Banks F561 Mergers & Acquisitions Professor Watson May 26, 2013 Introduction On July 28, 1993, Merck & Company, then the world’s largest drug manufacturer, announced that it planned to acquire, for $6.6 billion, Medco Containment Services Incorporated, the largest prescription benefits management company (PBM) and marketer of mail-order medicines in the United States. This merger reflected fundamental changes taking place in the pharmaceutical industry. GROWTH IN MANAGED CARE Managed care plans typically provide members with medical insurance and basic health care services, using volume and long-term contracts to negotiate discounts from health care providers. In addition, managed care programs provide full coverage for prescription drugs more frequently than do traditional medical insurance plans. Industry experts estimate that by the turn of the century, 90% of Americans will have drug costs included in some kind of managed health care plan, and 60% of all outpatient pharmaceuticals will be purchased by managed care programs. The responsibility for managing the provision of prescription drugs is often contracted out by the managed care organizations to PBMs. The activities of PBMs typically include managing insurance claims, negotiating volume discounts with drug manufacturers, and encouraging the use of less expensive generic substitutes. The management of prescription benefits is enhanced through...
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...You Decide: Case 5.1 Merck Acquisition of Medco You Decide: Case 5.1 Merck Acquisition of Medco When Merck & Company announced plans to acquire Medco Containment Services Incorporated in July, 1993, it signified the changes taking place in the pharmaceuticals industry. At the time, Merck was the world’s largest drug manufacturer and Medco was the leader in prescription benefits management (PBM). The responsibility for managing prescription drug provisions are increasingly contracted out to PBMs who, in turn, manage claims, negotiate discounts with drug manufacturers, and push generics. One could conclude that the prescription decision making process has shifted away from the doctor and is now being made by the PBMs. As a result, drug manufacturers are directing their marketing efforts to a few PBMs instead of thousands of doctors. It was anticipated that eventually the PBMs would begin to contract with one drug manufacturer instead of negotiating deals with several manufacturers. Therefore, firms with manufacturing, distribution, and prescription management capabilities will become the new industry leaders because of intense competition and lower profits. Merck’s goal should be to acquire capabilities and other resources to achieve a sustainable and competitive advantage (Weston, Mitchell, & Mulherin, 2004). Executive Committee Input The Merck Executive Committee consists of the Chief Operating Officer (COO), the Executive Vice President of Sales and Marketing...
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...You Decide: MERCK ACQUISITION OF MEDCO “Takeover can be both a problem and a solution”. However the merge between Merck & Company, the world’s largest drug manufacturer, which planned to acquire, for $6.6 billion, Medco Containment Services Incorporated, the largest prescription benefits management company (PBM) and marketer of mail-order medicines in the United States is a solution. As anyone may know, the increasing pace of merge activity during the past two decades is related to the power change forces listed in the textbook (Weston, P. 3). Even though overriding other forces are technological changes, which include computers, computers services, software, servers, and the many advances in information systems, including internet. However, Economies of scale, complementarities seems to be an efficiency gain to be achieved in order to stay competitive in the today’s economy characterized by the globalization. By the way, Lot of changes has taken place in the health care industry. And the most significant change involves the growth of managed care in the health care industry. Managed care plans typically provide members with medical insurance and basic health care services, using volume and long-term contracts to negotiate discounts from health care providers. In addition, managed care programs provide full coverage for prescription drugs more frequently than do traditional medical insurance plans. Industry expert’s estimate that by the turn of the century, 90% of Americans...
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...Merck Acquisition of Medco Study and Analysis Abstract Corporate mergers and acquisitions (M&A) have become popular across the globe during the last two decades due to globalization, liberalization, technological developments, and competitive business environment (Fisher & Siburg, 2009). The synergistic gains from M&A may result from efficient management, economies of scale, profitable use of assets, exploitation of market power, and the use of complementary resources (Mitchell et al, 2004). Theoretically it is assumed that mergers improve the performance of the acquiring firm due to increased market share and synergy impact. This paper reviews the acquisition of Medco Medco Containment Services, Inc. (Medco) by Merck & Company (Merck) and cites reasons for acquisition of Medco. Merck's acquisition of Medco represents a $6.6 billion bet on where the future of the pharmaceutical industry lies (Nichols, 1994). In today's managed-care environment, Vagelos (CEO of Merck in 1993) argues, the company that best controls the information flow from doctor to patient to pharmacist to plan sponsor has the greatest chance of succeeding. Medco has information on 38 million patients, which allows Merck to learn a lot more about how its drugs are prescribed and used and, ultimately, how effective they are in fighting disease. Owning Medco can also help Merck increase its market share in an industry in which no company has more...
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...Merck & Medco You Decide Assignment Merck’s acquisition of Medco: Merger Analysis and Recommendation by Marzena Porebski . Table of Contents 1.0 INTRODUCTION 2 2.0 THE COMPANY OVERVIEW 3 2.1 Merck & Company 3 2.2 Medco Containment Services Inc. 5 2.3 The Companies Advantages 6 3.0 MERCK & MEDCO MERGER 7 3.1 Acquisition Details 7 3.2 Merger Analysis 7 4.0 CONCLUSION 11 5.0 APPENDIX 12 5.1 Financial Reports 12 5.2 Sales of Drugs and Prices 13 5.3 Merger and Acquisition Activity 14 5.4 Market Share 15 5.5 Additional Documents 15 6.0 References 15 1.0 INTRODUCTION Mergers and acquisitions occur because directors see benefits that could come from combining two or more businesses, which could improve the company’s overall financial performance. Mergers and related acquisitions have occurred in the United States in a series of waves over the last century or more, as can be seen on the chart in Appendix 5.3. Over time, mergers have become popular and in recent times, the growth has been steeper outside of the United States. One of many reasons why mergers occur is due to macroeconomic factors that contribute to a merger wave such as economic conditions, credit availability, industry shocks, government policy changes, competitive business environment, innovation, technological developments, or globalization (Thompson). Mergers and acquisitions can generate cost efficiency through economies of scale, can increase the revenue through gain in...
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...Merck’s acquisition of Medco: Merger Analysis and Recommendation by Marzena Porebski . Table of Contents 1.0 INTRODUCTION 2 2.0 THE COMPANY OVERVIEW 3 2.1 Merck & Company 3 2.2 Medco Containment Services Inc. 5 2.3 The Companies Advantages 6 3.0 MERCK & MEDCO MERGER 7 3.1 Acquisition Details 7 3.2 Merger Analysis 7 4.0 CONCLUSION 11 5.0 APPENDIX 12 5.1 Financial Reports 12 5.2 Sales of Drugs and Prices 13 5.3 Merger and Acquisition Activity 14 5.4 Market Share 15 5.5 Additional Documents 15 6.0 References 15 1.0 INTRODUCTION Mergers and acquisitions occur because directors see benefits that could come from combining two or more businesses, which could improve the company’s overall financial performance. Mergers and related acquisitions have occurred in the United States in a series of waves over the last century or more, as can be seen on the chart in Appendix 5.3. Over time, mergers have become popular and in recent times, the growth has been steeper outside of the United States. One of many reasons why mergers occur is due to macroeconomic factors that contribute to a merger wave such as economic conditions, credit availability, industry shocks, government policy changes, competitive business environment, innovation, technological developments, or globalization (Thompson). Mergers and acquisitions can generate cost efficiency through economies of scale, can increase the revenue through gain in market...
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...| Merck-Medco | Analysis of an Acquisition | | | | | Merck-Medco Acquisition Analysis Executive Summary: Recommendation It is recommended that Merck tender a cash bid of $6.6 Billion dollars to acquire Medco Containment Services Inc. Marketing & Sales Considerations Medco currently maintains relationships with employers, plan sponsors, and managed care organizations and services over 33 Million individuals. The information collected on physician prescription practices, and patient records and refill tendencies will allow Merck to target their sales and marketing efforts to more effectively reach target markets. In addition, the data collected will be used to identify competitor drug deficiencies and pricing. Operational Considerations A combined Merck/Medco company would result in the control of the entire drug manufacturing and selling process. Merck would have the ability to manufacture drugs specific to each patients needs with collected information being used to research and develop new drugs for sale. Due to the vertical nature of this acquisition Merck will continue to be run independently of Medco so that each division can focus on executing on their strengths within the industry. Overlapping operations, such as marketing and sales, will be consolidated at an estimated after acquisition savings of $1 Billion. Financial Considerations As mentioned, it is recommended that the tendered bid be comprised of all cash. While this will...
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...Merck & Medco: A Comparative Analysis By: Larry Lloyd Keller Graduate School of Management FIN 561 Mergers & Acquisitions (Online) Professor Gene Smith September 19, 2015 Table of Contents Table of Contents…………………………………………………………………………………………………………………...i Executive Summary…………………………………………………..……………………………………………………………1 Overview of Pharmaceutical Industry…………………….…………………………………………………………......2 S.W.O.T Analysis..……………………..................................................................................................3-5 Impact on Marketing and Sales…………………………………………….………………………………………………..5-6 Marketing and Sales Considerations……………………………………………………………………………….........6-7 Operational Considerations………………………………………..…………………………………………….……………7-8 Financial Considerations………………………………………………………………………………………………………...8-9 Recommendations………………………………………………………………………………………………………………..9-11 References……………………………………………………………….…………………………………………………………….12 i. Executive Summary Merck & Co. is one of the world’s leading pharmaceutical companies, is seeking to acquire Medco Containment Services, a leading managed prescription drug benefit company, for $6 billion dollars. After the merger, Merck & Co. will seek to strengthen their position in healthcare industry, by not only selling prescription drugs used by millions of consumers, but also having a larger say in how the medicines are used by consumers...
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...You Decide Assignment on Merck’s Acquisition of Medco By Zankhana Desai FIN 561- Mergers and Acquisition Professor: Yvan Nezerwe Keller Graduate School of Management Table of Contents C5.1.0 Executive Summary…………………………………………….3 C5.1.1 The Major Driving Force of the Merck-Medco Acquisition.. 3-4 C5.1.2 The Role of PBM Companies……………………………….. 4-5 C5.1.3 Utilization of Medco’s Database……………………………. 5-6 C5.1.4 Competitive Reactions to Merck- Medco Acquisition ……. 6 C5.1.5 SWOT Analysis……………………………………………..6-8 C5.1.6 Impact on Marketing and Sales………………………….. 8-9 C5.1.7 Impact on Operational……………………………………..9- 10 C5.1.8 Impact on Financial Consideration………………………...10 C5.1.9 Benefits of the Acquisitions……………………………… 11 C5.1.10 Recommendations……………………………………… 12 References…………………………………………………… 13 C5.1.0 Executive Summary The purpose of this paper is to present the reader with an overview of the changing Health Care industry and the benefits of a vertical merger to the consumer with the Merger of Merck, the worlds’ largest drug manufacturer, and Medco Containment Services Incorporated, the largest most efficient prescriptions benefits management company. The merger would reflect the dynamic changes that have taken place in providing effective healthcare to consumers based on need rather than on insurance coverage. In essence two major players in the same industry would combine their attributes to better serve their clients...
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...Tyreece Whyte Fin 561 July 28, 2013 You Decide Case 5.1 Merck Acquisition of medco The merger between Merck and Medco will create a competitive advantage that will allow for long term survival and increase its competitive position by aligning with a PBM. In reaction to the merger between Merck company and Medco Smithkline Beecham and Roche Holding Limited announced their plans to acquire United healthcare and Syntex Corporation health systems in anticipation of the merger. By acquiring Medco, Merck will be a pioneer in the pharmaceutical and drug industry. Medco computer profile of 33 million customers that amounts to 26% of all people covered by pharmaceutical benefit plans, 100 fortune 500 companies, federal and state benefit plans and 58 blue cross/blue shield groups and insurance companies will give Merck an opportunity to identify prescriptions that could be switched from a competitor. Which will increase sales, identify patients who did not refill their prescriptions and provide proof that Merck drugs are worth the premium. The combination of medical records and who takes what pill will allow Merck to establish the supremacy of their products. Other benefits include a $1 billion annuals savings in marketing operations and a more precise marketing strategy. The marketing strategy will allow Merck to reduce sales force and focus on a marketing plan to managers instead of doctors. Some reasons for the merger are experts predict that managed care providers...
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...Case Analysis – Merck Medco Merck was a pharmaceutical manufacturer while Medco Cost Containment Services was a pharmacy benefit manager (PBM). On November 18th, 1993, Merck purchased Medco for $6.6 billion. Immediately after this merger, Medco operated as a subsidiary of Merck. This acquisition of Medco by Merck is a clear example of Merck expanding its organizational boundaries while adding value to Mercks operations at the same time. The advantages of Merck & Medco combining together are that it would result in the control of the entire drug manufacturing and selling process. Merck can manufacture drugs specific to each patients need with collected information being used to research and develop new drugs for sale. I will not analyze this decision by using the SWOT analysis. Merck is an industry leader in the manufacturing of drugs. Combining two segment leaders in the pharmaceutical industry will give Merck a strong competitive advantage since it will control the entire manufacturing market, as mentioned above. The combined efforts will also get rid of the process of overlaps or excess such as marketing and advertising expenses. The savings from the company will eventually result in lower prices for consumers. This will hopefully drive more quantities being purchased leading to increased profits. On the other hand, one weakness is the integration of these two companies may be difficult because they are operating in two different segments within the same industry. There may...
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...Case FIN561: Mergers and Acquisitions You decide: Merck Acquition of Medco Vikash Sharma In July 1993, Merck & Co., the largest pharmaceutical company in the world at that time, acquired Medco Containment Services for $6.6 billion. Medco was the largest prescription benefits management company. With the drug industry experiencing the effects of managed care, pharmaceutical companies had to adapt to new means of distribution. Merck realized that the decisions of what treatments and what drugs should be used in patients’ care were increasingly being influenced by the managed care environment rather than by physicians. In the world of managed care, it was no longer sufficient to market just to physicians. The successful pharmaceutical companies of the future would be companies that were able to adapt to the changed distribution system. This was a very strategic move my Merck and this vertical integration was a move that all its competitors were also targeting. In 1994 SmithKline acquired DPS for $2.2B and later that year Eli Lily acquired PCS for $4.1B. In order to understand why Merck acquired Medco, which was a pharmacy benefits management (PBM) company, we need to look at the role of this so-called PBM’s. These PBM’s have several functions * Process Pharmacy claims i.e. check for eligibility when an order is placed at the retail store, check for copayment etc * Set up Pharmacy benefit, which is to apply PBM codes to what drugs are covered under a particular...
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...Keller graduate school of management | Acquisition recommendations for the merger of Medco and Merck | Professor Jeffery Hardin/ FI 561 | | Carthenia Turk | 3/18/2013 | Recommendations are being prepared to be present to the board of directors regarding Merck’s acquisition of Medco. I have gathered information form several key employees within the organization in order to determine whether the merger will be profitable and allow the company continued growth. This analysis will include supporting calculations regarding the two companies becoming one. | Ladies and gentlemen I have been given the task of providing my recommendations as to our company (Merck), acquiring Medco. An evaluation of both companies will be completed so that I can provide accurate feedback as to the pros and the cons of the proposed merger. There will also be an analysis performed to determine the cost effectiveness and the potential synergy of the combined companies. Included in this recommendation you will find a (DCF) discounted cash flow, this will determine whether or not the post-merger company will have the ability to overcome any opposition that be in question. I will also be discussing the proposed strategy that we intend to take, should we agree to the merger. We will explore what works well for each organization and the best way to combine those efforts to maximize on continued growth for the organization. We here at Merck, being the world’s largest drug manufacturer...
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...Case Study: Merck Acquisition of Medco Professor Daniel Weiss FI561 January 23, 2011 DeVry University Case Study: Merck Acquisition of Medco Abstract The purpose of this case study is to determine whether it would be beneficial to merge Merck Corporation with Medco Containment Services Incorporated. The merger and acquisition between the world’s largest drug manufacturer and the largest prescription benefits management company (PBM) and marketer of mail order medicines in the United States would result in a successful campaign to take over the drug industry if handled appropriately. As Chairman and CEO of Merck Corporation, I have to consider all sides of the arguments, financially, marketing and cultural wise and come to a conclusion as to whether this merger would be a good idea for the company. Like any other investment and merger, there are risks, and I have to decide what would be best in the interest of this company. The details as to whether the decision to acquire or not acquire Medco will be described in this paper. Along with data that helps make that final decision. There are a few things one must take into account before making a decision. You have to look at the long term run, whether or not the merger and acquisition will be successful. You also have to take synergy into account; it is the most important reason why there are a lot of mergers and acquisitions. Synergy would be when two companies join forces to create additional value and cut costs...
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...Merck's Acquisition of Medco The reason behind a lot of Mergers & Acquisitions is due to the many changing forces in the business environment. Competitiveness, survival and profitability are key factors to the M&A. In the case of Merck, the plan for acquisition of Medco followed as competitors such as SmithKline Beecham, Roche Holdings Limited Eli Lilly and Company announced their plans to acquire other pharmaceutical companies and Health systems such as those of Diversified Pharmaceutical Services Incorporate, Syntel Corporation and PSC Health Systems, respectively. There still exist concerns on the executive team's side regarding whether or not to move forward with the acquisitions. Some favor the move and some do not. There are concerns about the synergies and integration of a highly research oriented pharmaceutical company such as Merck with a drug marketing company like Medco. In addition, there are concerns on the need to continue increasing the stock price for Merck and about the different business cultures between the two and how they may not mix well. This could result in an expensive failure. On the other hand, the marketing department fully supports the acquisition. The acquisition will provide leverage for marketing opportunities in the managed care area, given the size of the database for Medco. So, the plan is for Merck to acquire Medco for a $6.6 billion offer. Clear and substantive analysis of the M&A is needed for better decision making. Medco is a Benefits...
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