One of the biggest acquisitions of 2009 was the merger of Schering-Plough into Merck & Co., Inc. Both are major drug producers. The acquisition occurred on November 3, 2009.
Merck’s financial year ended on December 31, 2009. The issue to study is the impact on EPS of the acquisition. The following information is available for your analysis by looking up Merck’s 2009 Form 10K:
• The consolidated income statement for Merck for the year ended December 31, 2009 which is included in Item 8 of the 2009 Form 10K which includes the financial statements (see http://www.merck.com/investors/ﬁnancials/annual-reports/home.html for information).
• The ‘‘Preliminary Allocation of Consideration Transferred to Net Assets Acquired’’ taken from the note 3 of the 2009 Merck Financial Statements
• Supplemental pro forma data from the note 3 to the 2009 Merck Financial Statements (see http://www.merck.com/investors/ﬁnancials/annual-reports/home.html for information).
Prepare your response to the following questions:
1. What part of Schering-Plough’s 2009 income statement is included in Merck’s 2009 statement of consolidated income? What are Merck’s 2009 and 2008 EPS amounts?
2. What would have been Merck’s EPS amounts if Schering-Plough’s results were added to Merck’s results for 2008 and 2009?
3. What portion of the total assets acquired in the acquisition will create amortization charges to future periods?
4. What hope for the future of the merger did Merck offer to shareholders in its 2009 Annual Report? Check Item 7, Part II on page 63 of Merck’s 2009 Annual Report. (See http://www.merck.com/investors/ﬁnancials/annual-reports/home.html for information.)