Law Firm Probes Merck’s $6.7 Billion Terns Deal After Offer Cut

(P1) An investigation by law firm Kahn Swick & Foti into Merck’s planned $6.7 billion acquisition of Terns Pharmaceuticals is questioning the deal's fairness to shareholders, particularly after recent disclosures revealed Merck had cut its initial offer by $1 billion.

(P2) "KSF is seeking to determine whether this consideration and the process that led to it are adequate," the firm announced, focusing on the final $53.00 per share cash price that Terns shareholders are set to receive.

(P3) The deal’s history, detailed in recent SEC filings, provides critical context for the probe. Merck initially proposed a $7.7 billion buyout at $61 per share in early February. However, after reviewing updated data from the Phase 1 trial of Terns' lead leukemia drug, TERN-701, which showed a "lower" major molecular response rate than previously disclosed, Merck reduced its offer to $50 per share before settling at $53. An unidentified rival bidder who had matched Merck's initial $61 per share offer withdrew entirely, citing the new data.

(P4) The investigation introduces a new risk for the acquisition, which is a key part of Merck's strategy to build its oncology pipeline before its blockbuster drug Keytruda loses patent protection in 2028. While analysts at William Blair now see a competing bid as "unlikely," the legal scrutiny could delay the expected second-quarter closing or, in a less likely scenario, force a price reassessment. The outcome will determine whether Terns shareholders receive the agreed-upon $53 per share or if the investigation uncovers grounds to challenge the board's approval of the lowered offer.

Data Disappointment

The core of the controversy lies with TERN-701, a potential competitor to Novartis’ blockbuster leukemia drug, Scemblix. Terns disclosed to its suitors that the major molecular response (MMR) rate in its updated Phase 1 data was lower than the 64% rate presented in December 2025. This metric is a key indicator of a leukemia therapy's effectiveness. The disappointing data not only prompted Merck to slash its offer but also caused the other suitor to walk away, concluding the drug was not "sufficiently differentiated or sufficiently de-risked to proceed," according to the filing.

Strategic Imperative for Merck

Despite the less robust data, Merck proceeded with the acquisition, calling the results for TERN-701 "compelling." The deal remains a strategic priority for the pharmaceutical giant as it prepares for a significant revenue drop-off when Keytruda, which generated tens of billions in annual sales, faces biosimilar competition starting in 2028. Acquiring Terns and its hematology asset is one of several multi-billion dollar deals Merck has struck to diversify its portfolio and secure future growth, even at a price that reflects a higher degree of clinical risk than initially perceived.

This article is for informational purposes only and does not constitute investment advice.