| Merck-Medco | Analysis of an Acquisition | | | |

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Merck-Medco Acquisition Analysis
Executive Summary:
Recommendation
It is recommended that Merck tender a cash bid of $6.6 Billion dollars to acquire Medco Containment Services Inc.
Marketing & Sales Considerations
Medco currently maintains relationships with employers, plan sponsors, and managed care organizations and services over 33 Million individuals. The information collected on physician prescription practices, and patient records and refill tendencies will allow Merck to target their sales and marketing efforts to more effectively reach target markets. In addition, the data collected will be used to identify competitor drug deficiencies and pricing.
Operational Considerations
A combined Merck/Medco company would result in the control of the entire drug manufacturing and selling process. Merck would have the ability to manufacture drugs specific to each patients needs with collected information being used to research and develop new drugs for sale. Due to the vertical nature of this acquisition Merck will continue to be run independently of Medco so that each division can focus on executing on their strengths within the industry. Overlapping operations, such as marketing and sales, will be consolidated at an estimated after acquisition savings of $1 Billion.
Financial Considerations
As mentioned, it is recommended that the tendered bid be comprised of all cash. While this will restrict the accounting methods for this acquisition, I feel that the use of the purchase method will benefit the shareholders more than the pooling method. The premium that is paid will be recorded as goodwill allowing for depreciation for up to 40 years. The CFO’s preliminary calculations indicate an immediate positive return on EPS; however, there is concern over the growth of future