Merck Enhances Severance Plan

From Associated Press

Merck & Co. has adopted a severance plan that offers some executives one-time payments of up to triple their salary and other perks if the troubled pharmaceutical giant is acquired and they lose their jobs.

The plan is aimed at keeping top Merck executives from jumping ship as the company struggles with the fallout from the recall of its widely used arthritis drug Vioxx because of increased heart attack risks.

Shares of Merck, whose legal liabilities are estimated at as much as $18 billion, have fallen by more than a third since the recall announcement, from about $45 to less than $30, raising speculation that the company could be an acquisition target.

Merck, based in Whitehouse Station, N.J., disclosed the plan in filings Monday with the Securities and Exchange Commission.


The severance plan offers 230 key executives perks including up to three times their base salary and bonus if they are terminated as the result of a merger or acquisition.

For all but the 4,800 union workers at the 61,500-employee company, the plan would immediately vest all outstanding stock options and restricted stock units upon a change in control. The plan does not include performance-based stock options that key research and development staff hold.

“The whole idea is to try to both retain and motivate employees during what we would call periods of uncertainty that might occur in connection with a rumored or actual change in control,” Merck spokeswoman Janet Skidmore said Monday.

Skidmore said the company’s board adopted the plan after a periodic review of Merck’s compensation and benefits package showed a gap compared with other major companies.


“About 90% of large U.S. companies and nearly all other pharmaceutical companies have some form of change-of-control protection,” she said, adding that about two-thirds guarantee senior management change-in-control severance pay.

Skidmore declined to discuss whether Merck was negotiating any mergers, acquisitions, sales or other changes.

“The adoption of this program in no way implies that a merger or acquisition is imminent or desired,” she said.

Pharmaceuticals analyst Hemant Shah of HKS & Co. in Warren, N.J., said that such change-in-control provisions were typical and that the board’s decision was “really inconsequential.”

Shah said implementing the severance program didn’t indicate that any Merck deals were in the works.

“A potential acquirer is going to have a tough time evaluating the company,” he said, because of the uncertainty over the cost of the Sept. 30 Vioxx recall.

The SEC filings define a change in control as a merger, consolidation or reorganization bringing a significant shift of board members or shareholders; liquidation or dissolution of Merck or sale of substantially all of its assets; a significant change in the composition of the board of directors; or anyone acquiring more than 20% of voting shares.

Merck shares fell 3 cents to $27.67 on Monday on the New York Stock Exchange.