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OVERVIEW This first “You Decide” assignment is based on the Merck – Medco Case in Chapter 5

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OVERVIEW
This first “You Decide” assignment is based on the Merck – Medco Case in Chapter 5.
It is a scenario (a bit real and a bit fictitious) of various executives making
recommendations based on their own analysis to the Chairman-CEO, who in turn will
add his own analysis and recommendations regarding the acquisition of Medco to the
Board of Directors of Merck.
The paper must be written in your own words, and you are welcome to make
references to the outside sources you use; then you should list all of these
sources in your Bibliography.
Your paper should be written in hindsight of what happened after Merck acquired
Medco. You should analyze the facts in historical format: Merck decided to
acquire Medco, and then it had to divest it.
Consider the following questions: What factors motivated Merck to acquire
Medco? What factors forced Merck to divest Medco? What was the financial size
and impact of this decision.

GENERAL GUIDELINES FOR THE YOU DECIDE
The Analysis on the Merck - Medco Case
 
1)  You can comment on marketing synergy and operating synergy.
 
2)  You can do some SWOT analysis:  Looking for Strengths and Weaknesses of the
two companies, and also looking for Opportunities and Threats in the deal.
 
3)  I am also posting in Doc Sharing summaries of Merck’s 1994, 1995, 1996 10-K’s. Be
sure to observe the level of revenues of Medco in relation to Merck’s total revenues. .
You are welcome to you these financials as part of your analysis.
 
4)  Consider the market share rank of Merck at the time when this decision is being
made (1993).   How does Merck's market position compare with its competitors in
1993.  This information should be free on the internet.
5) Consider, the $6.6 Billion price Merck paid for Medco.
 

6)  Consider the stock price of Merck.  If you go to Yahoo.Finance pages on Merck, you
can find a stock chart, and you can select a chart that goes back 20 years.  Where was
Merck's stock price in 1992, what happened in 1993, and what happened after 1993
after Medco was acquired.
7) Then consider the Federal Trade Commission report of August, 1998, that
Merck’s acquisition of Medco was an anti-competitive.
8) Merck could not sell Medco through an IPO in 2002, and decided to spin off Medco to
its shareholders in 2003. The IPO price would have been $20 - $22 per share for 46.7
Million shares of Medco: $934 Million to $1,027.4 Million
 
9)  You are welcome to use outside sources from the internet, as well as the information
I posted in Doc Sharing.   Just make sure you state the information in your own words. 
Then list the source in the Bibliography at the end.
EXAMPLES OF ANALYSIS SECTION – SUB-SECTIONS
ANALYSIS - SUB SECTIONS
You Can have about 5 Sub-Topics  under the Analysis Section of your
You Decide:
1)  SWOT Analysis - This is  strategic and covers all topics:  Marketing &
Distribution,  Profit Margins for the two companies, Regulatory Risks.
2)  Marketing & Distribution Issues in detail.
3)  Financial Issues:  Price to be paid $6.6 Billion. Merck, which is in a high
profit margin industry is buying into a Low Profit Margin Industry (Medco).
4)  Regulatory Risks:  Possible Anti Trust Ruling re PMB’s (Pharmacy Benefits
Mangers).
5) The pullback of the IPO for around $1.0 Billion; then the spin-off to
existing shareholders.

SPECIFIC GRADING RUBRIC FOR THE YOU DECIDE

Class, here is the grading RUBRIC for the You Decide:

1. One page “Executive Summary”:  You summarize your whole paper
(including the analysis and the recommendation) in bullet format (with
full sentences), double spaced: 25 points 
GUIDELINES: THE EXECUTIVE SUMMARY – MERCK - MEDCO
Class,
The Executive Summary for the Week 2 Mini Case is optional; however, it will give you the
opportunity to practice. If the Week 2 Executive Summary is not correct, it will not cost you
any points.
The Week 5 IPO Paper is more conceptual, and there the Executive Summary will be
required.
The Executive Summary must be one full page long (double spaced).
You should write the Executive Summary last, after you complete the Analysis and Conclusions
sections of your paper.
The Executive Summary summarizes your whole paper on one page; therefore, a Board
Member or a busy Executive can read one page and get a complete picture of your paper.
Please note the sample outline of the Executive Summary below on page 2 of this Guideline.
The Executive Summary must be organized in short paragraph or bullet point format with full
clearly written sentences.
There must not be any short phrases or buzzwords that are used as replacements for the
sentences.

PLEASE NOTE THE SAMPLE OUTLINE BELOW ON PAGE 2:

EXECUTIVE SUMMARY

NAMES OF MERCK & MEDCO - WHAT ARE THEIR BUSINESSES?
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WHY DID MERCK ACQUIRE MEDCO & FOR HOW MUCH?
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ANALYZE THE RATIONALE – STRATEGY OF THIS ACQUISITION.
WHAT ARE THE RELATIVE SIZES OF THE 2 COMPANIES IN TERMS OF REVENUE LEVELS ?
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DISCUSS INTERNAL & EXTERNAL PROBLEMS WITH THIS ACQUISITION?
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CONCLUDING COMMENTS – WHAT HAPPENED AT THE END? – WAS THIS A SUCCESS IN
TERMS OF ACQUISITION? FAILURE OF IPO @ WHAT PRICE ? FINAL RESULT?
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2.  Detailed analysis of the synergy, marketing strategy, financial and other
issues.  ( 5 - 7 pages, double spaced including any financial tables.): 90
points. Do not flood your paper with financial data, use the dollar
information from the various sources in your discussion.

3.  Conclusions (Half Page to One Page, double spaced): 10 points
4.  Bibliography (One Page): 10 points
5.  There should also be a cover page with the title of the paper and your
name, and this does NOT count as one of the 8 – 10 pages.
Please note that all items 1 - 4 above are double spaced.

SAMPLE EXECUTIVE SUMMARY
!!! Class, please note the posted Sample Executive Summary as a separate file in Doc
Sharing. 
This file is on two pages, and the outline of the Executive Summary is on page 2. Be
sure to scroll down to Page 2.

WHAT HAPPENED TO MEDCO?
On July 21, 20111, there was announcement from news sources that Express
Scripts acquired Medco for $ 29.1 Billion.
You might review news sources on the internet re the strategy of these two companies
in the future for operating as one entity. Observing what is going on now, can help your
SWOT Analysis with 20/20 hindsight.

PLAGIARISM & CITATIONS
!!!Class, be sure to read the section of the Syllabus on "Plagiarism and Citations."
You are welcome to use references to support your positions on the You Decide;
however, be sure to restate the information in your own words. Then use one of
the styles suggested in the Syllabus to list your references for these outside sources in
the Bibliography at the end of your paper.
You are of course welcome to develop your analysis on this case.