That Hissing Sound You're Hearing, From Kenilworth, NJ. . .

. . .Is more of the supposed New Merck "synergy/headcount reduction" savings (from the Schering-Plough bust up) -- escaping.

The plan was -- under Sabatino and Kuhlik -- that most of the headcount expense associated with the Schering-Plough/Intervet Animal Health businesses would ultimately be off-loaded to the New Merial joint venture -- a 50-50 affair with Sanofi-Aventis. Delever the expenses, at New Merck, and ramp up a net revenue stream, out of the 50-50 New Merial JV. That was the idea. It is now clear, that is not going to transpire (I repeatedly said it seemed dubious from a regulatory perspective, even then -- given the market power these two players would wield, when combined.).

Accordingly, New Merck is going to have to operate the old Intervet Animal Health assets, and accept the cost (overhead, R&D and headcount) of the same. This is likely yet another reason CEO Frazier withdrew guidance for 2011-2012, a couple of months ago. But make no mistake, this decreases the expected savings from the Schering-Plough deal, and in a material fashion, too.

Here's a bit of the Reuters reporting this morning:

. . . .The move sets back the French and U.S. drugmakers' plans to achieve economies of scale in the consolidating animal care industry, and comes a month after they delayed the long-running deal's closing by another six months.

It is also a blow to companies that had hoped to snap up assets with about $500 million in annual revenue that the pair would have had to sell to clear regulatory hurdles. . . .

Yet another Hassan-Sabatino headache, handed to Merck, now over a year and a half post closing. Picture much excited hand waiving, and a "we'll be able to figure it out in 2010!" repeatedly chanted, out of the law department in Kenilworth, during the summer of 2009 -- as the first step of the Merial JV took shape. Sheesh.