The case of who bought whom in the Merck
In order to avoid triggering a change-in-ownership provision in a contract between Johnson & Johnson
Rather than let an arbiter make the final decision, the two sides decided to hash out a compromise. Under the terms of the new agreement, Merck retains territories that make up about 70% of the current revenue it gets from selling the two drugs. In those regions Merck also has to pay Johnson & Johnson more of the profit than it had been, bumping the Johnson & Johnson's share from 42% up to 50%. Additionally Merck has to make a one-time payment of $500 million for the privilege of giving up part of its rights.
It's tempting to declare Johnson & Johnson the winner here -- it does, after all, have more than it did before. But Merck could have lost the entire $2.8 billion in revenue it brings in from the drugs with one pound of the gavel. A settlement lifts the clouds that have been hanging over Merck's shares for over a year. Considering both companies are up today, I think it's fair to call this one a draw.
With the uncertainty gone, the companies can get back to marketing Remicade and Simponi in their three way battle with Abbott Labs'
Uncertain about where the market is going? Watch this before the market crashes.
Johnson & Johnson and Pfizer are Motley Fool Inside Value picks. Johnson & Johnson is a Motley Fool Income Investor pick. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of Abbott Laboratories, and Johnson & Johnson. Alpha Newsletter Account, LLC owns shares of Abbott Laboratories and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.