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As Merck Moved, Company X Mulled Deal For Schering-Plough

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hide captionCompany X considered a deal for Schering, too.

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Ahh, more deal-making intrigue unfolds in Big Pharma land.

A remarkably detailed account of negotiations between Merck and Schering-Plough over their planned merger reveals that a mysterious "Company X" could have prevailed in taking over Schering. (See Schering's filing with SEC late yesterday for the nitty gritty, starting on page 48.)

Advisers to Schering said the mystery company had the greatest interest and wherewithal besides Merck to make a deal. So, in early January, about a month after top execs from Merck and Schering began chatting about a transaction, Schering CEO Fred Hassan called the CEO of Company X to see whether he was interested in talking about an alternative mashup.

At a meeting later that month, Hassan told Company X's CEO to get a move on "in light of the motivated overture from" Merck. Talks with the unnamed company continued but on February 5, Company X's CEO phoned Hassan and told him there would be no deal proposal after all.

Which company considered a play for Schering? Hassan, unfortunately, didn't invite us to the exploratory talks. But Johnson & Johnson strikes us as one possible candidate. It's certainly got the money and also may have the motivation given weakness in its own pharmaceuticals unit.

Then there's the disclosure in the same securities filing that J&J will seek arbitration to see whether whether it can break a distribution agreement with Schering covering Remicade, a lucrative rheumatoid arthritis drug, and golimumab, or Simponi, a similar medicine in development.

Schering markets Remicade for J&J overseas and booked $2.1 billion for those efforts last year. J&J asserts that the Merck's effective takeover of Schering represents a change of control that would trigger J&J's rights to rip up the pact and keep all the Remicade and Simponi sales for itself.

The Wall Street Journal reported J&J was the other suitor. A J&J spokesman, citing company policy, declined to comment on the merger speculation.

Regardless of the drama, the Merck-Schering deal is expected to close by the end of the year.

Bonus Analysis: Nobody parses SEC filings as diligently as Michelle Leder over at footnoted.org. Check out her take on Company X.

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