Medco

606 Words Oct 17th, 2013 3 Pages
Case Analysis – Merck Medco
Merck was a pharmaceutical manufacturer while Medco Cost Containment Services was a pharmacy benefit manager (PBM). On November 18th, 1993, Merck purchased Medco for $6.6 billion. Immediately after this merger, Medco operated as a subsidiary of Merck. This acquisition of Medco by Merck is a clear example of Merck expanding its organizational boundaries while adding value to Mercks operations at the same time. The advantages of Merck & Medco combining together are that it would result in the control of the entire drug manufacturing and selling process. Merck can manufacture drugs specific to each patients need with collected information being used to research and develop new drugs for sale.
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Lastly, there is also a possibility that competitors will follow our strategy which may ultimately lead to price war, driving overall profit levels down in the industry.
Through this analysis, I would recommend Medco to remain as a separate subsidiary company operating under Merck. This will allow both companies to continue operating on their strengths. Merck will continue to focus on operations within the medical, clinical, and other areas while Medco will work on maintaining relationships with plan sponsors and other managed care organizations. This will allow each division to work and support the other.
Some financial considerations we must take into account are that the purchase price of $6.6 billion, Merck would be paying a premium to acquire Medco, which had reported revenues of $2.2 billion in 1992. The revenue generated is 22% increase from 1991. This shows that Medco has seen tremendous growth in both revenue and earnings since coming into the market in 1984. Thus Merck will gain the ability to increase more market share as well.
In conclusion, I feel that it is right for Merck to acquire Medco. Merck must adapt to the changing marketing place to remain profitable and have a competitive advantage. The resources available through Medco will definitely change the ability of Merck to generate revenue.