Merck
The move looks somewhat schizophrenic. Why didn't Merck just use the money to increase the cash portion of its bid for Schering-Plough? Well, the $3 billion buyback gives the company a little more flexibility than just handing the cash over to Schering-Plough's shareholders. After all, it can pick and choose when to do the buyback, if at all.
Further, I have a hard time jibing Merck's buyback of its shares with its desire to potentially double the number of drug deals it does. Why not conserve the cash for some pipeline stockpiling?
Retiring the shares would help decrease the substantial 4.2% dividend it currently pays out. The company announced yesterday that it'll keep the dividend where it's been for the past several years into at least the first quarter of next year. That decision stands in contrast to Pfizer
Besides, the company racked up $8.2 billion in long-term debt before the acquisition, plus the debt it acquired from Schering-Plough -- another $8 billion, according to Schering's last balance sheet. One would think the return on retiring that debt might be higher than the return on retiring shares.
Of course, the buyback is just an authorization from the board; the company isn't required to use it. Maybe this is just part of an elaborate ploy to confuse competitors such as Johnson & Johnson
Or maybe Merck is just confused.
