Merck ( MRK) has told securities regulators it will spin off Medco Health Solutions, its wholly owned pharmacy benefits management unit.

The pharmaceutical company had planned last year to offer shares of Medco through an initial public offering, but will now instead spin off the unit to Merck shareholders. Medco will borrow $1.5 billion from Merck as part of the spinoff. The proceeds from the borrowing will be paid to Merck as part of a dividend from Medco.

Merck expects to complete the spinoff in the third quarter. Medco had sales of $33 billion last year.

Medco's planned IPO was scrubbed last summer because of weak market conditions. Just before the public offering plan was pulled, a published article said the unit had recorded revenue from co-payments made by consumers for prescriptions.

While the practice didn't affect earnings, it led to worries that Merck was using aggressive accounting techniques. Those fears threatened to tarnish Merck's reputation at a time when the investing public was growing increasingly concerned about the business practices of corporate America.

Shares of Merck closed Wednesday at $55.74 on the New York Stock Exchange.