Merck to cut 7,000 jobs

11/28/2005

Monday November 28, 8:13 AM EST

NEW YORK (Reuters) - Merck & Co Inc. on Monday said it will cut 7,000 jobs and close five plants in a bid to save up to $4 billion in costs by 2010, the first steps by its chief executive to revive the drugmaker’s fortunes.

Merck, which has struggled with patent expirations of key drugs and ongoing litigation over the withdrawal of its Vioxx pain medicine, said the job cuts would reduce its workforce by 11 percent globally by 2008.

The moves are among the first by Richard Clark, who took over as Chief Executive of the company in May, and they focus on manufacturing, the division that Clark oversaw before his promotion.

Shares of Merck, a component of the Dow Jones industrial average, edged up less that 1 percent to $31.25 in premarket trading on the Inet electronic brokerage.

Merck said it expects the initial phase of the cost reduction program to yield cumulative pretax savings of $3.5 billion to $4 billion from 2006 through 2010.

About $2 billion of the cost savings will result from the implementation of a new supply strategy at its manufacturing division, which Merck said would create a leaner, more cost-effective and customer-focused manufacturing model over the next three years.

Merck sees about half of its planned job cuts in the United States, and said will also close one basic research site and two preclinical development sites by the end of 2008, subject to compliance with legal obligations.

The pretax costs of the restructuring are expected to be $350 million to $400 million in 2005 and $800 million to $1 billion in 2006.

The company forecast full-year 2005 earnings per share in a range of $2.47 to $2.51 excluding charges, and net earnings of between $2.04 and $2.10 per share.

For 2006, Merck forecast a profit of between $2.28 to $2.36 per share, including about a 7 cent per share impact from stock option expensing but excluding restructuring charges. On a net basis, it sees a profit of $1.98 to $2.12 per share.

Before the announcement, analysts, on average, were expecting the company to earn $2.50 per share in 2005 and $2.38 per share in 2006, according to Reuters Estimates.