M&a Medco Essay

6621 Words May 6th, 2011 27 Pages
Case Analysis - "Merck-Medco" Maureen Hergert MGT 362 - SPRING 2004 Professor Steven Francis Case Analysis - "MerckMedco" March 7, 2004 Introduction. Merck & Company (Merck) was a pharmaceutical researcher and manufacturer while Medco Cost Containment Services, Inc. (Medco) was a pharmacy benefit manager (PBM). On November 18, 1993, Merck purchased Medco for $6.6 billion. Immediately after the merger, Medco operated as a subsidiary of Merck. In 1994, MerckMedco was formed. 2 Grant states that corporate strategy involves decisions that define the scope of the firm. In addition, he states the importance of vertical integration as it has caused companies to redesign their value chains within their organizational boundaries. 1 The acquisition …show more content…
Acquiring Medco and its competencies makes the most sense for Merck. According to Merck's 1993 annual reports, its vision is to create the world's first coordinated pharmaceutical care company that will optimize discovery, development, selection, delivery, utilization, and value of prescription drugs. 2 The quickest and most effective manner in which to achieve this vision is through a PBM acquisition. The internal development of pharmacy benefit competencies would be very difficult and time-consuming for Merck. When making its decision, Merck should not view moving into the pharmacy benefit management area as enhancing existing competencies, but rather expanding into a different business within the pharmaceutical industry in which new competencies will be needed. Based on the aforementioned quote by Grant that internally developing new human resource competencies for new capabilities is limiting, it is not advisable to use Alternative #2. Based on the criteria presented by Christensen on when to use spinouts, Merck should not use Alternative #3. Conclusion. The case study states that despite the initial plans to integrate Merck and Medco upon the acquisition, the companies remained independent. Specifically, it states that management decided to preserve both cultures. Merck's strengths were in the medical, clinical, and sciences areas while Medco had strong relationships with employers, plan sponsor, and managed care

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