March 13 (Bloomberg) -- The $41.1 billion acquisition Merck & Co. announced March 9 may look like a buyout of fellow drugmaker Schering-Plough Corp. The surviving company would be named Merck, run by its chief executive officer, Richard T. Clark, and based at Merck’s headquarters.

Regulatory filings say otherwise. Under the companies’ so- called reverse merger, Schering-Plough, of Kenilworth, New Jersey, would legally be the last one standing. That’s likely to provoke a face-off with rival Johnson & Johnson, of New Brunswick, New Jersey, over who gets Schering-Plough’s biggest prize, its $3.12 billion arthritis-drug franchise, said Seamus Fernandez, a Leerink Swann & Co. analyst in Boston.

J&J and Schering-Plough share sales for the rheumatoid- arthritis medicine Remicade under a contract provision giving J&J full control if Schering-Plough is sold. Listing Schering- Plough as the acquirer in filings sidesteps that clause, said Bruce Kuhlik, general counsel at Whitehouse Station-based Merck. It’s an action open to challenge, said David Feldman, a corporate lawyer who specializes in reverse mergers.

“This is not even close to a black-and-white situation,” said Feldman, of Feldman Weinstein & Smith LLP in New York, in a telephone interview.

Remicade was Schering-Plough’s top seller last year, generating $2.12 billion. Under its contract with J&J, an acquisition also would strip Schering-Plough of rights to golimumab, a potential successor that may earn $1 billion more.

Months to Settle

While arbitration between the companies probably won’t scuttle the deal, it may take months to settle and weigh on Merck and Schering-Plough shares, said Roopesh Patel, a UBS analyst in New York, in a telephone interview.

J&J, the world’s largest maker of health care products, may negotiate for another prize, such as its competitors’ consumer products or a cash payout. It could also mount a rival bid for Schering-Plough, said Lawrence Biegelsen, a Wachovia Capital Markets analyst in New York, in a note to clients.

J&J “is going to be a problem,” said Linda Bannister, an Edwards Jones & Co. analyst in St. Louis, in a telephone interview. “It creates an element of uncertainty around the whole deal.”

Johnson & Johnson rose $1.64, or 3.4 percent, to $50.64 in New York Stock Exchange composite trading at 4 p.m. Merck climbed $3.04, or 13 percent, to $27.07. Schering-Plough increased $1.89, or 8.5 percent, to $24.21.

J&J won’t comment on the acquisition or its strategy, said Jeff Leebaw, a company spokesman. The drugmaker also declined a request to interview its general counsel, Russell Deyo.

‘Vigorous Defense’

Merck doesn’t believe the deal violates the J&J agreements and will “vigorously defend our rights if necessary,” Kuhlik, the general counsel, said in a March 9 conference call.

“I just want to be clear,” Peter Kellogg, Merck’s chief financial officer, said on the call. “We believe that this transaction does not trigger the change in control arrangement, and so we believe that we’ll be having the Remicade and golimumab business going forward.”

A Merck spokeswoman, Amy Rose, and a Schering-Plough spokesman, Stephen Galpin, both declined to comment.

As laid out in a March 10 regulatory filing, Schering- Plough would be the surviving company in the acquisition, albeit renamed Merck and run by Clark. Its board of directors would include three holdovers from Schering-Plough’s old board.

‘Somewhat Contrived’

The move by Merck and Schering-Plough is “somewhat contrived -- but likely legal,” said Leerink Swann’s Fernandez in a March 10 note to investors. Still, for J&J, there’s “no downside” to hauling its two competitors through arbitration over the disputed drugs, he said. The Remicade deal provides for binding arbitration to settle disagreements.

J&J may negotiate for Schering-Plough’s over-the-counter products, including allergy drug Claritin, the Dr. Scholl’s foot care line and Coppertone sunscreen, which generated $1.28 billion in sales last year. They may fold into a consumer unit that already accounts for a quarter of J&J revenue, Biegelsen said.

Schering-Plough’s $2.97 billion-a-year animal health unit may also be a draw for J&J, Biegelsen said. Merck will sell its own 50 percent stake in an animal-health venture with Sanofi- Aventis SA as part of the acquisition, people familiar with the deal told Bloomberg News March 9.

J&J also may top Merck’s offer for Schering-Plough by 10 percent and still have the acquisition add to earnings next year, Wachovia’s Biegelsen estimated. A J&J bid would be profitable even if Merck claims rights to Zetia and Vytorin, the cholesterol pills it sells with Schering-Plough, he said.

Lump-Sum Payment

The would-be partners may also make a lump-sum payment to pacify J&J, said Patel, of UBS.

“You can skin the cat several ways,” he said.

Merck would have a hard time convincing a judge that Schering-Plough isn’t being bought, Feldman, the attorney, said. Still, the case may be muddied by the Remicade contract, which he said defines a “change of control” but doesn’t use the term in the section laying out when parties can terminate the pact.

Both sides may use the threat of protracted legal action “as leverage,” he said.

Remicade was J&J’s biggest drug last year, with $3.75 billion in sales. J&J sells it in the U.S. and Schering-Plough in most countries elsewhere.

Under the 1998 Remicade contract between Centocor Inc., Remicade’s inventor, and Schering-Plough, which paid for development and regulatory costs, the agreement ends if either company has a “change in control.” J&J bought Centocor in 1999, giving it the previous company’s rights.

Experimental Treatment

A similar contract covers golimumab, which is awaiting approval from U.S. and European regulators. That drug may generate more than $1 billion for Schering-Plough annually, the company estimated at a Nov. 24 analysts’ conference. J&J sales may reach $755 million by 2011, Michael Weinstein, a J.P. Morgan & Chase Co. analyst in New York, said in an Oct. 29 note.

A counteroffer for Schering-Plough may be the least likely option, given that J&J has no history of making hostile bids, said Les Funtleyder, a Miller Tabak & Co. analyst in New York.

Swallowing Schering-Plough would also contradict J&J’s strategy of diversifying outside the drug business, said Edwards Jones’ Bannister. That goal was behind J&J’s $16.6 billion purchase of New York-based Pfizer Inc.’s consumer division in 2006, she said.

To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net.