Merck-Medco alliance comes under attack

Drug Store News, Sept 6, 1993 by Ken Rankin

Merck's proposed takeover of mail-order pharmacy giant Medco Containment Services has come under attack in a flurry of class action lawsuits filed by pharmacists, stockholders and antitrust lawyers.

The heaviest activity at press time was taking place in Wilmington, Del. where a series of class action suits have been filed challenging the merger. In one of the Delaware cases, a group of Medco shareholders contend that the terms of the takeover would loot the company by making $80 million in unwarranted "sale compensation payments" to Medco chief executive officer Martin Wygod and two of his lieutenants.

A separate suit filed by San Bruno, Calif. independent pharmacist Michael Goldstein not only seeks to scuttle the merger, but also accuses Medco of engaging in a decade-long conspiracy with McKesson and several major pharmaceutical manufacturers involving "massive schemes of price discrimination, secret rebates and kickbacks."

Still another class action complaint filed by former San Francisco Mayor Joseph Alioto on behalf of Mill Valley, Calif. pharmacists contends that the merger would create an illegal price-fixing cartel "because Merck will be given instant access to the actual prices charged to Medco by all of Merck's competitors."

Officials at Medco called the court challenges "without merit" and vowed to mount a vigorous defense:

In a statement explaining the situation to federal securities regulators, Medco executive vice president Charles A. Mele predicted that the suits "will have no material adverse impact... upon the ability of Medco to consummate the merger."

Meanwhile, Clinton Administration antitrusters are coming under pressure from independent pharmacy leaders to challenge the merger as a clear violation of federal price-fixing laws.

NARD executive vice president Charles West has called the merger plan "an unholy alliance" and says independent pharmacists "feel nothing short of betrayed by Merck's decision to join forces with Medco."