Pharmaceutical manufacturer Merck & Co. says it will separate its Medco Health Solutions pharmacy benefits management subsidiary in a stock distribution to current Merck shareholders, scrapping earlier plans for an initial public offering.
At Merck's annual meeting Tuesday, Chairman, President and CEO Raymond Gilmartin disclosed that Merck directors had approved the strategy, according to a company statement.
Merck will distribute 100% of Medco shares to Merck stockholders at an unspecified time in a transaction Merck officials say should be tax-free. The PBM also will pay a cash dividend to Merck around the time of the spin-off, the statement says.
"We continue to believe that by establishing Merck and Medco Health as two separate companies, we will enhance the potential for success of both businesses, thereby increasing shareholder value," Gilmartin told the gathering in Whitehouse Station, N.J.
"Last year, we announced our plans to establish Medco Health as a separate, publicly traded company. The separation was designed to enhance the success of both Merck and Medco Health by enabling each one to pursue its unique and focused strategy. This transaction will achieve that objective by providing our shareholders with equity in two very successful companies with significant growth potential," Gilmartin says.
A Merck spokesperson was not immediately available to explain why there will be no IPO or to say whether Medco would have its own tracking stock.
Last July, Merck postponed and later withdrew plans for an IPO, citing market softness, though some Wall Street analysts have speculated that an ongoing federal investigation of the PBM industry was a factor in the decision.
Merck on Tuesday reiterated its position that it delayed the IPO last year "solely due to unfavorable market conditions."