Merck & Co. and Schering-Plough Corp. followed rival drug companies Pfizer Inc. and Wyeth, not only in deciding to combine, but also in providing the buyer with an out if the financing fails. Pfizer and Wyeth signed a merger agreement in January that allows Pfizer to walk upon payment of a $4.5 billion reverse termination fee -- about 6.6% of the deal's $68 billion value -- if the five banks that agreed to underwrite the deal's $22.5 billion in debt don't fund. Wyeth would owe only a $2 billion breakup fee if it takes a better offer.

Both the high reverse breakup fee and the significant divergence between it and the breakup fee were new in M&A practice. Given the tight financing markets, buyers are wary of finding themselves in the same spot as Dow Chemical Co., which had no financing out in its $15 billion agreement to buy Rohm and Haas Co. and had little room to cut a better deal. But sellers fear that a skittish buyer will use the financing out as a pretext for walking from a deal that the buyer comes to believe is overpriced.

Thus, the solution that Pfizer and Wyeth reached: a deal that includes a financing out upon payment of a high reverse termination fee but that allows the seller to sue for specific performance if the buyer tries to walk in the absence of a financing failure.

Merck and Schering used a very similar structure. Merck would owe the target $2.5 billion, about 6% of the deal's $41 billion value, if it walks upon a failure of financing, while Schering would have to pay Merck $1.25 billion to take a better deal.

Both companies used their longtime outside counsel. Merck tapped David Shine and Philip Richter of Fried, Frank, Harris, Shriver & Jacobson LLP in New York. Fried Frank's F. William Reindel and Damian Ridealgh handled the financing work on the deal. Shine has done Merck's deal work since the mid-1990s, including Merck's $1.1 billion acquisition of Rosetta Inpharmatics Inc. in 2001; its $1.1 billion purchase of Sirna Therapeutics Inc. and its $400 million acquisition of GlycoFi Inc., both in 2006; and, the next year, its $350 million purchase of NovaCardia Inc.

On the banking side, Merck is using Robbie Huffines and Jeff Stute of J.P. Morgan Securities Inc., which also advised on the Rosetta deal and is underwriting the $8.5 billion in debt on the Schering-Plough transaction.

The target turned to Andrew Brownstein, Martin Lipton and Gavin Solotar of Wachtell, Lipton, Rosen & Katz. Though Schering hasn't been an aggressive acquirer, Brownstein and Solotar worked on the company's 2000 joint venture with Merck and a 2004 JV with Bayer AG as well as on various financings. Solotar took the lead for Wachtell in representing Schering-Plough when it bought Organon BioSciences NV from Akzo Nobel NV for $14.4 billion two years ago.

Goldman, Sachs & Co. advised Schering on that deal, and the bank's Tim Ingrassia, Robert King, Jo Natauri and Jason Silvers are working with the company on the Merck deal along with Peter Crnkovich, Clint Gartin, Tedd Smith and Joe Modisett of Morgan Stanley, which advised Akzo.

Goldman is also advising the special committee of Genentech Inc., which agreed to sell to Roche Holding AG on March 12. David Woodhouse and Marshall Smith are leading the bank's team on that deal. No other advisers to the principals on the two deals overlap.