Pricing Supplement No. 5
Pricing Supplement No. 5
Dated February 10, 2003
(to Prospectus dated November 28, 2001
and Prospectus Supplement
dated December 5, 2001)
Merck & Co., Inc.
Medium-Term Notes, Series E
Floating Rate Notes
| Underwriters and Principal Amounts: |
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
TOTAL |
$30,000,000
$25,000,000
$55,000,000
|
| Trade Date: |
February 10, 2003
|
|
Settlement Date
(Original Issue Date):
|
February 18, 2003
|
|
| Stated Maturity: |
February 18, 2043
|
|
| Interest Rate Basis: |
3-month LIBOR
|
|
| Spread: |
Minus 45 basis points
|
|
| Initial Interest Rate: |
3-month LIBOR, determined as if the
original issue date were an interest reset date, minus the spread
|
|
| Interest Reset Dates: |
Quarterly, on the 18th day of
each February, May, August and November, commencing May 18, 2003
|
|
| Interest Payment Dates: |
February 18, May
18, August 18 and November 18 of each year, commencing May 18, 2003
|
|
| Issue Price: |
100.00% of the principal amount
|
|
| Underwriter’s Discount: |
1.00% of the principal amount
|
|
| Net Proceeds to Merck: |
99.00% of the principal amount
|
|
| Calculation Agent: |
U.S. Bank Trust National Association
|
|
| CUSIP: |
58933NAX7
|
|
Optional
Repayment Dates: |
The notes will be repayable at the option of the holder on at least 30
days notice on the following optional repayment dates and at the
following repayment prices: |
| |
Optional Repayment Date |
Repayment Price |
| |
February 18, 2014 and on each third
anniversary thereafter to maturity |
100.00% |
| Optional Redemption: |
The notes may be redeemed at any time, at the option of Merck, in whole
or in part, in amounts of $1,000 or any multiple of $1,000, at the
following redemption prices, if redeemed during the following 12-month
periods: |
| |
Redemption Period |
Redemption Price
|
| |
February 18, 2033 through February 17, 2034 |
105.00% |
| |
February 18, 2034 through February 17, 2035 |
104.50% |
| |
February 18, 2035 through February 17, 2036 |
104.00% |
| |
February 18, 2036 through February 17, 2037 |
103.50% |
| |
February 18, 2037 through February 17, 2038 |
103.00% |
| |
February 18, 2038 through February 17, 2039 |
102.50% |
| |
February 18, 2039 through February 17, 2040 |
102.00% |
| |
February 18, 2040 through February 17, 2041 |
101.50% |
| |
February 18, 2041 through February 17, 2042 |
101.00% |
| |
February 18, 2042 through February 17, 2043 |
100.50% |
Recent Developments:
On January 28, 2003, Merck
& Co., Inc. announced its fourth quarter and full year 2002 results.
Merck’s consolidated net income was $7,149.5 million in 2002, compared to
$7,281.8 million in 2001. Consolidated sales grew 9% to $51.8 billion for the
year, while Merck’s human health sales in its core pharmaceuticals business
increased 1% for the year. Merck’s consolidated net income for the fourth
quarter of 2002 was $1,889.8 million, compared to $1,860.9 million for the same
period in 2001. Consolidated sales grew 11% in the fourth quarter of 2002 to
$13.9 billion, while Merck’s human health sales in its core pharmaceuticals
business increased 8% for the fourth quarter, including a 1% benefit from
foreign exchange. Merck’s five largest-selling products — ZOCOR,
FOSAMAX, COZAAR and HYZAAR*, SINGULAIR and VIOXX — collectively had
increased sales of 18% for the fourth quarter of 2002 as compared with the same
period in 2001.
Merck’s consolidated
sales growth also reflected the impact of Medco Health Solutions, Inc.’s
sales, which increased 14% in 2002. On a stand-alone basis, Medco Health’s
net revenues increased 13% to $33.0 billion in 2002, including retail
co-payments of approximately $6,456.8 million. Medco Health’s net revenues
— reported on a stand alone basis — increased by 11% to $8.5 billion
in the fourth quarter of 2002, including retail co-payments of approximately
$1,652.4 million. Merck remains fully committed to the establishment of Medco
Health as a separate, publicly traded company and intends to complete the
separation in mid-2003, subject to market conditions.
As we reported on our
Current Report on Form 8-K dated December 9, 2002, Medco Health has agreed to
settle a series of class-action lawsuits that challenged Medco Health’s
position under the Employee Retirement Income Security Act, or ERISA. Under
ERISA, those with responsibility for overseeing certain benefit plans —
such as retirement plans and health insurance plans — are known as
“fiduciaries” and are obligated to ensure that decisions are made in
the best interest of the plans and plan members. Medco Health has contractual
and indirect relationships with many plan fiduciaries or plan sponsors. However,
Medco Health believes that it is not a fiduciary under ERISA as the plaintiffs
asserted, and this settlement does not change that position. Medco Health has
always maintained that the plaintiffs’ claims were without merit. Under the
terms of the proposed settlement, which was agreed to by plaintiffs in five of
six initial lawsuits filed against Medco Health and requires the approval of the
U.S. District Court for the Southern District of New York, plaintiffs will
release various legal claims against Medco Health and Merck — without any
admission of liability by either company — in return for financial
compensation to eligible members of the settlement class. That class includes
ERISA — plans for which Medco Health has administered a pharmacy benefit at
any time since December 17, 1994. The court will hold a hearing and consider
objections to the settlement. Final resolution of the legal matter is expected
to take several months.
In addition to cash
compensation of $42.5 million, under the proposed settlement Medco Health has
voluntarily agreed to modify or continue certain business processes that are
designed to ensure clients have an even greater understanding of, and realize
maximum value for, their investment in pharmacy healthcare services. The
practices include, among other items, keeping clients regularly updated on
changes to standard formularies and providing notice when generic equivalents to
branded pharmaceuticals become available on the market. They also include
affirmatively notifying clients of new proposed therapeutic interchanges when
they involve an interchange of a lower-cost drug to a higher-cost drug on an
average wholesale price, or AWP, basis. In these situations, Medco Health will
provide clients with information on the AWP of each drug and the cost of each
drug after ingredient cost discounts and formulary rebates. Clients will have
the opportunity to decline participation in that particular interchange.
______________
* COZAAR and HYZAAR are registered trademarks of E.I. DuPont de Nemours &
Company, Wilmington, DE, USA.
Upon final approval, the
settlement would resolve nearly all pending and potential litigation by plans
against Medco Health and Merck based on ERISA and similar claims, for events
occurring up to the date of the settlement. Only those claims by plans that
affirmatively opt out of the settlement would survive.
Experts:
The financial statements
incorporated in the accompanying prospectus by reference to our annual report on
Form 10-K for the year ended December 31, 2001 were so incorporated in reliance
on a report of Arthur Andersen LLP, independent accountants, given on the
authority of that firm as experts in auditing and accounting. That report was
issued on March 21, 2002 and has not been reissued by Arthur Andersen since that
date.
Arthur Andersen was
convicted on June 15, 2002 of federal obstruction of justice in connection with
its actions regarding Enron Corp. and ceased to practice before the Securities
and Exchange Commission as of August 31, 2002. Arthur Andersen consented to the
incorporation by reference of its audit report relating to our annual
consolidated financial statements into the registration statement of which the
prospectus forms a part. Arthur Andersen also satisfied the Commission’s
requirements to certify to us that the audit was subject to its quality control
system to provide reasonable assurance that the engagement was conducted in
compliance with professional standards, and that there was appropriate
continuity of its personnel working on the audit, availability of national
office consultation, and availability of personnel at its foreign affiliates to
conduct the relevant portions of the audit. Nevertheless, as a result of the
events arising out of Arthur Andersen’s conviction you may have no
effective remedy against it in connection with a material misstatement or
omission in the financial statements it audited. Moreover, the events arising
out of Arthur Andersen’s conviction may adversely affect the ability of
Arthur Andersen to satisfy any successful claim.
Notes Used as Qualified
Replacement Property:
Prospective investors
seeking to treat the notes as “qualified replacement property” for
purposes of Section 1042 of the Internal Revenue Code of 1986, as amended (the
“Code”), should be aware that Section 1042 requires the issuer to meet
certain requirements in order for the notes to constitute qualified replacement
property. In general, qualified replacement property is a security issued by a
domestic “operating corporation” that did not, for the taxable year
preceding the taxable year in which such security was purchased, have
“passive investment income” in excess of 25 percent of the gross
receipts of such corporation for such preceding taxable year (the “Passive
Income Test”). A corporation will be considered an “operating
corporation” if at the time the securities are purchased or before the end
of the replacement period, as defined in Section 1042 of the Code, more than 50
percent of its assets are used in the active conduct of a trade or business. For
these purposes, where the issuing corporation is in control of one or more
corporations or such issuing corporation is controlled by one or more other
corporations, all such corporations are treated as one corporation (the
“Affiliated Group”) for the purposes of computing the amount of
passive investment income for purposes of Section 1042. Merck believes that it
is an “operating corporation” and that less than 25 percent of its
Affiliated Group’s gross receipts is passive investment income for the
taxable year ending December 31, 2002. In making this determination, Merck has
made certain assumptions and used procedures which it believes are reasonable.
However, the calculation and characterization of certain types of income (as
active or passive investment income) in certain of the Affiliated Group’s
finance and insurance companies is not entirely clear as there are no Treasury
regulations or rulings promulgated by the Internal Revenue Service (the
“IRS”) that explain the calculation and characterization of such
income in circumstances similar to those of Merck’s Affiliated Group. Even
if such categories of income were treated as passive investment income, Merck
believes that the Affiliated Group’s passive investment income did not
exceed more than 25 percent of the Affiliated Group’s gross receipts for
the taxable year ending December 31, 2002. No assurance can be given as to
whether Merck will continue to meet the Passive Income Test. It is, in addition,
possible that the IRS may disagree with the manner in which Merck has calculated
disagree with the manner
in which Merck has calculated the Affiliated Group’s gross receipts
(including the characterization thereof) and passive investment income and the
conclusions reached herein. Investors that treat the notes as “qualified
replacement property” are subject to special rules regarding their basis
and holding period in the notes. Investors should consult their own tax advisors
about the operation of the rules relating to qualified replacement property in
their particular circumstances.
| |
MERRILL LYNCH & CO.
MORGAN STANLEY |