Of Barnum's Prescience, Part Two. . . .

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UPDATED -- 03.09.09 @ 10:30 AM EDT

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I think the Centocor/JNJ reversion clause at 8.2(c), will be triggered, if this deal closes on the terms described today:

". . . .(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. . . ."

Note the bolded portions -- only three of Schering-Plough's previously-serving directors will be elected to the renamed-as-Merck surviving board, post transaction.

Note also, that "the Board" referred to in 8.2(c) above must mean only the Shering-Plough board. Not any board led by CEO Clark. No, it means the "old" Schering board -- for a contract cannot bind anyone who is not then a party to it, or does not agree to be bound by it. And Clark's board did not, in 2003. Ponder this, afterall -- is it not CEO Clark offering to exchange "combined company" shares, today, for the "old ones" which represented the stand-alone Schering-Plough businesses? Lawyers can -- and will -- argue about this, despite the contrary assurances of Merck's General Counsel, today, on the call. Plainly, Centocor meant to prevent these rights/arrangements from fallling into "enemy hands". Centocor bargained, and paid for that right. I suspect this is far from clear.

Well, this will be entertaining, if nothing else, as the parties also agreed to binding arbitration of any dispute. [Follow the link to learn more about how that might play out.]

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So, in a reverse-merger (ostensibly to keep the JNJ reversion clause from being triggered -- more on that, below), Messrs. Clark and Hassan have agreed, apparently, that Schering-Plough is worth only about $16.6 billion more than Schering-Plough paid for Organon, outright, in November 2007. Organon cost Schering just under $16 billion. At this morning's open, Schering-Plough is worth $19.80 -- or an approximate $32.67 billion market cap, on 1.65 billion outstanding common shares. NYSE opening tape:

. . . .SGP 9:41AM ET $19.80. . . .

So, is all the rest of old Schering-Plough (excluding Organon), only worth $16.6 billion?

I'd say that this deal is a huge coup for Merck (if it clears Hart-Scott, and EU Merger authorities, relatively intact, and perhaps more importantly, doesn't get delayed, or scuttled, by litigation from Johnson and Johnson). I'd say that, once again, CEO Hassan has managed to cart off something like $70 million, while shafting the common shareholders (especially those that bought at $27.50 $32 [$32 was the Spring of 2007 high-price] in the last public offering -- September of 2007!), and (probably) getting about 40 percent of Schering-Plough's rank-and-file workforce severed. Cut loose. Fired.

"Doin' a heckuva' job, Freddie!"

Now, as I alluded to above, expect a challenge -- in some form -- from JNJ. The Remicade/Golimumab reversion clause (via the Centacor distribution agreement), by rights, ought to have been triggered by this deal. But Schering and Merck have structured it so that Schering-Plough (renamed to Merck) is actually the surviving entity. The CEO will be Clark; the colors will be that odd off blue-green and white, the HQ will be in Whitehouse Station -- but under those surgical drapes, in the OR, Schering-Plough CEO (for the moment!) Hassan will tell JNJ CEO Weldon, "the patient's heart is still beating, maroon and white. . . ."

That is, the JNJ reversion is not triggered, they'll say, because the SGP legal entity survived this full-body transplant. "It is just that the heart, Schering-Plough, the business, stopped beating. A minor technicality. Really. Let the Frankenstein Monster off the table, they'll say.

But William Weldon is smarter than that.

Expect Merck/Schering to pay, and pay a lot, to JNJ for this transaction structure -- and not in a way that increases the deal price received -- by the long-suffering Schering-Plough shareholders.

I'll cover Fred Hassan's personal potential payday -- after I finish vomiting. He is to be made stinking rich (probably north of $72 million!) -- after I finish vomiting. Yep, made filthy rich again -- see Pharmacia, for running a company into the ground.

Sickening.