Dividend.com: Merck Merging

Merck and Schering-Plough Walking Down the Aisle

Shares of Merck ( MRK) were down nearly 9% in early trading after the company announced it would be acquiring competitor Schering-Plough ( SGP) for $41.1 billion in stock and cash.

Schering-Plough's shareholders will get $10.50 in cash and 0.5767 Merck shares for each Schering-Plough share they own. That's a 34% premium to Schering-Plough's closing stock price on Friday.

Merck has about 55,200 employees, while Schering has about 50,800 employees. Management from both companies believe the combined operations will create a pharmaceutical giant focusing on cholesterol, respiratory, infectious disease and women's drugs, as well as vaccines.

This deal is a bit of a surprise, considering there was lots of chatter that biotech companies would be a better target for either company. We will likely see numerous layoffs announced once the deal is completed. We also believe the dividend payout has the potential of being cut as well. We would remain on the sidelines with both stocks at this point.

Eastman Chemical Rallies on Further Cost Cuts

Shares of Eastman Chemical ( EMN) were up nearly 5% in early trading after the chemical maker announced actions to further reduce costs by more than $100 million.

Eastman is taking the following actions to achieve these savings:

  • Reducing base pay for U.S. employees by 5% effective March 30, with equivalent cost reductions in bargaining unit sites and locations outside the U.S.

  • Implementing a global targeted reduction in force of between 200 to 300 employees within the next four to six weeks

  • Reducing non-critical maintenance costs

  • Reducing logistics costs

  • Further reducing discretionary spending

Looking ahead, management is expecting full-year 2009 earnings per share will be between $2 to $3 excluding charges related to cost cutting actions. The consensus is for $2.30 to $2.31 per share.

We had removed shares of Eastman from our "Recommended" list back on Sept. 4, when the stock was trading at $57.56. The company has a 9.64% dividend yield, based on Friday's closing stock price of $18.26. Unfortunately, the stock is now hitting lows we have never seen technically, so we don't know where the next support level will form. If the shares can gain any momentum, we see initial overhead resistance at the $27 mark. We would remain on the sidelines for now.

Eastman Chemical is not recommended at this time, holding a Dividend.com Rating of 2.8 out of 5 stars.

CF Industries Says No to Agrium Again, Pursuing Terra Industries Acquisition

Shares of CF Industries ( CF) were flat this morning after the fertilizer company announced its board of directors has rejected the proposal from Agrium ( AGU).

The board has also announced that its board of directors has reaffirmed its intention to pursue a business combination with Terra Industries ( TRA). CF is offering an exchange ratio based on $27.50 for each Terra share, with an exchange ratio of not less than 0.4129 of a CF Industries share and not more than 0.4539 of of one.

It appears that CF may be playing hard to get here. Terra Industries has not bitten on the CF offer as well. Deals like this are tricky for investors who want to place their chips down. We would remain on the sidelines here, but our gut tells us that Agrium will likely come back with an increased offer for CF.

None of the stocks mentioned above are currently on our "Recommended" list.

Neither of the two stocks mentioned above are currently on our "Recommended" list.

Deal Possible? Dow Chemical & Rohm & Haas Continue Talks

Shares of Rohm & Haas ( ROH) were up nearly 4% this morning as talks continue with Dow Chemical ( DOW) about a potential deal or settlement.

Both companies have re-entered talks about a potential combination, following January's decision by Dow to put the agreement on hold because of concerns over funding and the difficult economy.

In a deal announced last January, Dow said it would buy Rohm & Haas for $78 a share in cash. Analysts believe the deal was over-priced and came at a bad time of the economic cycle.

The only upside of the deal getting back on the table has been to Rohm & Haas shareholders who have seen the stock rise in 10 days from $52 to nearly $66 this morning. Dow shares continue to drift lower and that is not great sign for the buyer at this point. We would remain on the sidelines for now, regarding both stocks.

Neither of the two chemical makers are currently on our "Recommended" list.

Be sure to visit our complete recommended list of the Best Dividend Stocks as well as a detailed explanation of our ratings system.

At the time of publication, the author had no positions in stocks mentioned, although positions may change at any time.

Tom Reese and Paul Rubillo are senior editors of Dividend.com. Visit Dividend.com for more dividend stock ratings, picks, news, and analysis for long-term and income-seeking investors.

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