Merck to Offer Big Bonuses to Executives if It Is Taken Over

November 29, 2004

By ALEX BERENSON

With its stock down sharply and its ability to thrive as an independent company uncertain, Merck has adopted a special plan that will give its top executives big bonuses if the company is taken over.

Merck, the giant pharmaceutical company, has been reeling since it withdrew its arthritis drug Vioxx from the market on Sept. 30 after acknowledging that using Vioxx can increase the risk of heart attacks. Today, Merck said in a federal securities filing that its board had decided to give its 230 most senior managers the opportunity for a one-time payment of up to three years of salary and bonus if another company buys Merck.

Merck has said that it is committed to remaining independent, and a Merck spokeswoman repeated that position today. But the plan, which the board adopted last Tuesday, is the first formal acknowledgment that Merck is now so weakened that it may be vulnerable to a takeover.

The company did not disclose how much the plan would cost if it is carried out.

Some other big companies have so-called golden parachute plans to protect top executives in the event of takeovers. But experts on corporate governance say Merck's decision to adopt such a plan was particularly ill-timed. And some critics argue that the board is in effect rewarding its top executives for its problems with Vioxx and the company's inability to bring new drugs to market.

Merck's stock has dropped 70 percent since 1999, and the company now faces federal investigations and thousands of civil lawsuits in the wake of the Vioxx withdrawal.

"It looks terrible, period," said Tom Dewey, a lawyer who has consulted for pharmaceutical companies and their boards.

But Mr. Dewey and other governance experts and analysts also said the company had little choice but to give talented executives some incentive to stay as it copes with the aftermath of the Vioxx withdrawal.

"There are obviously a lot of unhappy and unsettled senior executives at Merck," Mr. Dewey said. The new plan is "about protecting the senior management and executives," he said.

Anita Larsen, the Merck spokeswoman, said that the new plan was not related to its problems with Vioxx. Merck's board first considered adopting the plan several months ago, well before it withdrew the drug, she said.

"It had nothing to do with the situation regarding Vioxx," Ms. Larsen said.