While rumors circulated of a gigantic merger with a rival, pharmaceutical giant Merck (MRK) - Get Report said Friday it is acquiring genomics research firm Rosetta Inpharmatics (RSTA) in a stock deal valued at about $620 million.

An unconfirmed report published Friday says that Merck has made an offer to acquire rival drug maker

Schering-Plough

(SGP)

for $65 a share, or $91 billion.

Business Week

, citing an unnamed investment banker, says Merck made an unsolicited offer for Schering-Plough, which was rebuffed. But how likely is a Merck/Schering-Plough deal?

Schering-Plough is the subject of frequent takeover rumors because of recent manufacturing and quality-control problems that have taken their toll on the company's stock price. Analysts have downplayed past takeover talk because of Schering-Plough executives' insistence that the company will remain independent.

Shares of Merck were down $1.07, or 1.4%, to $75.45 in Friday trading. Shares of Rosetta were up $7.34, or 74%, to $17.25. Schering-Plough shares were up $2.25, or 6%, to $39.35 because of the rumored takeover talk.

Merck says it is acquiring Kirkland, Wash.-based Rosetta in a tax-free reorganization that will convert each share of Rosetta into 0.2352 share of Merck stock. Based on Merck's May 10 closing price of $75.52, the deal values Rosetta at $18 a share, an almost 100% premium over its May 10 closing price. The entire deal has a net equity value of about $620 million.

In a statement, Anthony Ford-Hutchinson, executive vice president of worldwide basic research for Merck Research Laboratories, said Rosetta enhances the drug giant's genomic research capabilities.

"We realize that the availability of the human genome sequence is just the first step in a long process of identifying gene products and their functions, and translating them into innovative medicines that can prevent, treat or cure disease," he said.

Merck is best known as the marketer of top-selling drugs like Vioxx for arthritis and the cholesterol-lowering Zocor. In acquiring Rosetta, the company gains technology that will allow it to use genetic testing to increase the efficiency and effectiveness of its drug development program.

"This is a good deal for Merck," said Michael Clulow, analyst with

UBS Warburg

. "Rosetta's technology is awesome, so the deal not only allows them to accelerate its drug discovery process, but it takes the technology away from its competitors," he explained. Clulow rates Rosetta a strong buy, and his firm has not done banking for the company.

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