Bloomberg’s Afternoon Take — On The FTC Second Request. . . .

I think this gets it just about right — the bulk of today’s FTC second request likely centers on the Animal Health businesses. What is unknown, still, is whether this was a whopper of a second request, or a fairly mild one. Per Bloomberg, this afternoon:

. . . .If a sale doesn’t settle FTC concerns about competition in the animal drug industry, Merck or Schering-Plough may have to put more products on the market, said David Moskowitz, a Caris & Co. analyst in New York.

“There’s going to be that many more products for sale,” Moskowitz said today by telephone. “It could affect pricing in the sense that Merck really wants to get those approvals.”

Likely suitors for the units include Indianapolis-based Lilly, which wants to expand its animal business, and Paris- based Sanofi, already a partner with Merck in Merial Ltd., maker of the flea-repellant Frontline, Moskowitz said. . . .

The FTC makes a second request for information in a minority of cases to ensure a buyout won’t hurt competition, the commission says on its Web site. Once the companies answer the request, the commission has 30 days to review the material.

Antitrust concerns are unlikely to derail Merck’s purchase of Schering-Plough, said Caris & Co.’s Moskowitz. “Merck absolutely needs this to get done to produce growth over next couple of years,” Moskowitz said. “They’re going to do what they have to do”. . . .

Pretty much as I wrote earlier, in fact.

Merck’s Debt Offerings Just Got “Green-Shoe”-ed — to $4.25 Billion. . . .

BREAKING: Per MarketWatch, B of A just upped the debt offering’s all-in size — to an indicated $4.25 billion, in the aggregate:

. . . .Merck & Co. is selling $4.25 billion in debt Monday, with portions maturing from 2 years to 30 years, according to Informa Global Markets. The drugmaker increased the amount from $3.5 billion earlier, Informa said. For one of the largest portions, Merck is likely to pay 0.75 percentage point more than 2-year Treasurys, or about 1.89%. The 30-year portion may yield 1.45 points more than Treasurys, or 5.91%, Informa said. . . .

Note also that the spreads are tightening, from the initial indications — they’ve come in, about ten bips, over the course of the morning. Note also that the spreads are tightening, from the initial indications — they’ve come in, about ten bips, over the course of the morning. As ever, more as it develops.

UPDATED — 06.22.09 @ 7 pm EDT: Some of the debt proceeds may be used to fund the Vioxx Global Settlement, per Merck’s evening press release: “. . . .In addition, Merck may use all or a portion of the proceeds to fully fund the two funds established for qualifying claims pursuant to the company’s Vioxx litigation settlement agreement, in which case the collateral previously pledged in connection with such funds will be returned to Merck. . . .“

Interesting.

First Set of Combined Pro-Forma Financials Filed With SEC. . . .

As Merck prepares to issue four separate tranches of merger-related debt securities — for an indicated $3.5 billion principal amount, in the aggregate — it has filed an SEC Form 8-K, with some unaudited pro-forma combined financial statements for the two companies — as though they were already one.

This is significant, because it represents the first public disclosure of the more detailed financial picture Merck expects will emerge, as the two companies are combined. I am still tearing through it — but this much deserves mention:

. . . .Note 3(r):

Represents the fair value adjustment associated with Merck’s previously held equity interest in the Merck/Schering-Plough cholesterol partnership resulting in a gain, substantially all of which is reflected as a corresponding fair value adjustment to intangible assets and the remainder as an adjustment to inventory. Under FAS 141(R), a business combination in which an acquirer holds a noncontrolling equity investment in the acquiree immediately before obtaining control of that acquiree is referred to as a “step acquisition.” FAS 141(R) requires that the acquirer remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss in earnings. Because this adjustment will not have a continuing impact, it is excluded from the unaudited pro forma condensed combined statement of income. . . .

That is from Footnote 3(r) to the pro-formas. It would seem that Merck will book a one-time, non-operating gain, as it consolidates the Cholesterol J/V — and will use that to offest a write-down in the Vyotrin and Zetia inventory the J/V now holds — as selling-prices, and thus carrying values, for those two drugs have eroded substantially in the last twelve months.

Much more as I sort through it all. Additional graphics coming, on the $3.5 billion in total tranches of proposed debt offerings, as well. Here is what is known on these coming debt offerings — per Reuters:

. . . .The offering includes a two-year note tranche expected to yield about 87.5 basis points over comparable U.S. Treasuries.

It also includes a six-and 10-year note tranche both expected to yield about 150 basis points over U.S. Treasuries and a 30-year bond tranche expected to yield between 155 and 160 basis points over Treasuries.

Proceeds from the offering will be used to help finance its $41.1 billion acquisition of Shering Plough, according to IFR.

Banc of America Securities, Citigroup Global Markets, JP Morgan and RBSGC are the joint lead managers on the sale. . . .

As one potentially helpful comparison point, for these spreads — I’ll note that Pfizer’s three year debt (Pfizer is — of course — also involved in a pharma mega-merger) was recently trading at 125 bips over the relevant U.S. Treasury instrument. That is about dead in the middle of the two year, and six year, spreads quoted above for Merck’s offering. Seems in line, and well in the middle of this market (these spreads are plainly much wider, than they would have been, pre-market meltdown of last fall). More soon.

FTC Makes Second Request of Merck and Schering-Plough

As expected, the companies have received a so-called “second request” for information on competitive overlaps — under the Hart Scott Rodino Antitrust Improvements Act (“HSR”, for short). Significantly — apparently the companies have, as yet, made no EU Commission filing, at all — and that is also a “tiger with a rather long tail“.

What is not yet known is what areas of the businesses, other than Animal Health, are under review at FTC/DoJ. I had earlier predicted (in a reply-comment to this post) a rather broad and voluminous second request — we may be able to infer how sweeping the second request is, by seeing how long it takes the companies to refile. Each company will very likely announce when they have complied with the second request, so that the investing public will be able to start the clock on the FTC’s 30 day response time.

From Merck’s presser of this morning:

. . . .Merck and Schering-Plough intend to cooperate fully with the FTC to obtain approval of the transaction as expeditiously as possible. The transaction is subject to approval by Merck and Schering-Plough shareholders and the satisfaction of customary closing conditions and regulatory approvals, including expiration or termination of the applicable waiting period under the HSR Act, as amended, as well as clearance by the European Commission under the EC Merger Regulation and certain other foreign jurisdictions. Until the merger closes, both companies will continue to operate independently. . . .

I would be surprised if this transaction clears HSR without additional requests, and additional responses, after this “intitial” second request.