Case Study: Merck Acquisition of Medco
Professor Daniel Weiss
FI561
January 23, 2011

Case Study: Merck Acquisition of Medco

Abstract

The purpose of this case study is to determine whether it would be beneficial to merge Merck Corporation with Medco Containment Services Incorporated. The merger and acquisition between the world’s largest drug manufacturer and the largest prescription benefits management company (PBM) and marketer of mail order medicines in the United States would result in a successful campaign to take over the drug industry if handled appropriately. As Chairman and CEO of Merck Corporation, I have to consider all sides of the arguments, financially, marketing and cultural wise and come to a conclusion as to …show more content…

As long as the foreseen problems are avoided, there is a good chance the acquisition of Medco would be a successful one. Some of the potential weaknesses would be that more and more pharmacies would partner with other PBMs. Other companies could follow in Merck’s footsteps and the competitive advantage would dissipate and would have to compete with prices, advertising and marketing which would end the economies of scales and scope of saving costs through synergy. There are three forms of synergy, the first are revenues, which will either increase or decrease when the two companies join forces. The revenue realization should typically be higher once combined. Expenses are the second type, and when the two companies combine, typically these expenses are lower than before, lastly the cost of capital which should also be decreased and lower overall costs of both companies. But the main focus would be on expenses because that is probably the main and most important task of every company when they have a merger or acquisition: cut costs where ever possible. In order for synergy to be completed and successful, Merck would need to make sure that this would be a strategic fit. If both companies have different objectives and strategies, there will be conflict and tension among each other