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Merck & Co.'s decision to postpone-for a third time-the initial public offering of Medco Health Solutions Inc. has sparked talk on Wall Street that the drug company may choose to do a direct spin- off of its pharmacy benefit manager (PBM).
In that scenario, Merck would distribute shares of Medco to Merck shareholders, who could opt to hang onto them or trade them in the public market. In contrast to the IPO, which it had hoped would earn the drug company close to $1 billion in cash, Merck wouldn't raise any money with a direct spin-off. But it would give Merck an escape hatch for exiting the PBM business.
"Merck doesn't need to do this financially," said one banker not involved in the deal. That may not be the issue, however. Merck's ownership of Medco has become a sore point for Wall Street, investors and regulators. As a PBM, Medco acts as a middleman...