Sunday, April 19, 2009

At Least Five Separate Institutional Investors Have Filed Suits. . . .

. . . .to enjoin, delay or modify the proposed reverse merger between Schering-Plough and Merck. The goal of each of these suits is to seek, and obtain, an increased return to the common shareholders of Schering-Plough -- if the company is to be busted-up, and sold-off. There are at least 17 suits in total, and at least four of those are now pending in the federal District Courthouse in Newark, New Jersey -- pending before Judge Cavanaugh, the same very able jurist handling all of the more than 150 pieces of ENHANCE-related litigation [click to enlarge]:

. . . .the [merger negotiation and review] process was grossly inadequate, amounting to a clear breach of the Schering-Plough officers' and directors' fiduciary duties. . . .

The Q1 Earnings Call should thus be rather entertaining.


Anonymous said...

Do you have any info as to the stability of the SP pension fund?

Condor said...

I know it is immensely underfunded.

It would likely improve the liquidity of the Schering pension plan if the Merck merger is consummated.

I'll look into it -- and put up a post on it, later this week.

Thanks for asking -- and stopping by.


Condor said...

In the event that the Merck transaction is completed, at least some of the underfunded plans will have instant liquidity, to the extent that they hold Schering-Plough stock, at closing. That is, any of the plans then holding SGP will receive $10.50 in cash for each share -- thus increasing the liquidity of those plans' assets.

However, as of year-end 2008, the pension plan was underfunded by $1.2 billion -- per the financial footnotes, Note 9, in Form 10-K:

". . .At December 31, 2008 . . . the accumulated benefit obligations (ABO) for the retirement plans were $3.7 billion. . . . The aggregated accumulated benefit obligations and fair values of plan assets for retirement plans with accumulated benefit obligations in excess of plan assets were $3.4 billion and $2.2 billion, respectively, at December 31, 2008. . . ."

That leaves about $1.2 billion unfunded, and it will likely be worse this year, due to the overall equity market downturns.

More later.


condor said...

Not to prattle on here too much, but the 2008 year end asset-by-asset holdings of the pension funds won't be filed with the SEC until late-June 2009 -- so I'll use 2007 figures (from the June 2008 SEC Schering Form 11-K filing, Page 13):

". . . .7. INVESTMENTS

The following investments represented 5 percent or more of the Plan’s net assets available for benefits. . . .

Schering-Plough Stock Fund, 882,935 . . . units, and $422,749,000, respectively. . . in 2007
. . . ."

This means that the plans held, at year-end 2007, about 16,153,955 shares of Schering-Plough -- the single largest holding the plans had.

If there are still that many, or more, shares held by the plans today, $169,616,528 in cash will be paid to the plans in the merger.

And that generates decent liquidity, for the $1.2 billion of underfunding, should there be a spike in pay-outs (say via early retirements/layoffs).

However, at year-end 2007, SGP was trading at about $26.90 per share -- so the losses the plans show on these shares, at year-end 2008, when the stock was trading at about $16.90 -- are ALSO about $10 per share.

Now THAT's a pretty interesting coincidence, no?

The Sch-Merck transaction will return almost all the losses since 2007 year-end to the plans -- in cash.

Thus, as I have argued before, this deal looks (in part) like a non-litigated, preemptive settlement of securities law liabilities.


Condor said...

Okay --

As promised, I've edited, and refined, these three comments into new post -- you'll find it here.