STARKe Attack

Meg Harper: "Joe, have you ever heard of manic depression?"
Joe Scheffer: "Huh? Yeah! [laughing hysterically]"
Meg Harper: "See, this...this is way out of my league."
--Joe Somebody

This past Monday Merck (MRK) announced a $40+ billion buyout of Schering Plough (SGP). For years, I held speculative positions in SGP with a potential takeout as part of the thesis. While waiting, however, previous SGP management ran the company into the ground (thx Dick Kogan), making this position one of the biggest losers of my investment career--and placing it on my 'personal restricted list.'

Moreover, one reason why I recently legged into Merck was the firm's historical tendency to stay away from big mergers. Mergers, you see, usually benefit the seller more than the buyer. Buyers nearly always overpay (why sell your company otherwise?), making it difficult to achieve superior returns on capital. Plus you have the integration issues...

So, I found the merger announcement to be ironic in more ways than one. Upon hearing the news pre-market on Monday, my initial reaction was, well, unfavorable. Others seemed to dislike it as well, as MRK stock was pounded on Monday to the $20 level last seen in 1995.

Retrospectively, Monday was also a day of general market capitulation, as my FA contacts tell me that many of their clients threw in the towel on stocks in a brutal market sell-off.

Since then, however, pharma shares have done a big about face higher, with MRK closing the week up about 35% off its Monday lows.

These kind of moves make you wonder whether market participants aren't round tripping on Xanax and Zoloft which, I suppose, would be coolio for Pfizer (PFE).

positions in MRK, PFE