Bayer as white knight edges out Merck in bid for Schering

FRANKFURT: German pharmaceutical major Bayer AG is all set to annex rival Schering AG for 16.3 billion euros as another German firm, Merck KGaA, called off its plans to get to the top position in the German drug industry through the Schering acquisition.

Bayer came in as a white knight in the acquisition saga beating Merck’s 77-euro-a-share offer with its 86-euro-a-share offer. Merck said it is walking away because a higher price than it offered is not justified.

If Bayer wins Schering, it will create a unified entity with 15 million euros in sales. Bayer is yet to recover from the setback of its cholesterol drug Baycol, which had to be recalled in 2001. The acquisition will bring to its fold Schering’s top-selling oral birth control drug Yasmin and multiple sclerosis drug Betaseron.

The combined drugs business will be called Bayer-Schering Pharmaceuticals and will be based on Berlin.

Schering’s chief executive Hubertus Erlen said it is not possible for the company to maintain its independence given the attractive nature of the Bayer bid. He said he would recommend the offer to the shareholders.

Bayer’s chief executive Werner Wenning said Schering has a good network in the United States, which will help the merged company to market Bayer’s new cancer drug, Nexavar.

Bayer estimates that the merger could lead to some 6,000 job cuts as there are overlaps at production, research and development and sales levels.

The company will finance the deal through 3 million euros it has in cash resources and through new credit lines from Credit Suisse and Citigroup. The arrangement will be through a mix of equity, term debt, hybrid instruments and the proceeds from the sale of non-core assets of the company.

German insurance company Allianz is Schering’s single largest shareholder although its holdings are not strategic. It is not clear how it will act if the deal goes through.

Merck said its board felt that a higher price for Schering shares is not justified. The company’s chief executive Michael Roemer said he is still convinced that Merck-Schering combination would have been a good option for both companies.

The 338-year-old company will now need to find out other ways to consolidate and grow. It said it will continue to explore other options.

Schering shares were still up 1.5 per cent at 86.26 euros. The markets had earlier hoped that Merck would come back with a higher offer.