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Bayer-Schering tie-up looking more likely

Merck out of the running after 'white knight' bid is accepted

Bayer's Ä16.3bn 'white knight' offer for fellow German firm Schering is on the verge of success after Merck KGaA announced it would not issue a counter bid.

Merck's hostile Ä14.6bn bid was trumped last week by Bayer, which has hailed the potential deal as a means of building a large German pharmaceutical company that can compete on the international stage.

The combined company's pharma unit would be called Bayer-Schering Pharmaceuticals and would be an independent unit within the Bayer healthcare division, with annual sales of more than Ä9bn.

ìWe are convinced that merging the two companies will create a healthcare heavyweight of international standing with a strong market position based on an innovative product portfolio and a well-stocked pipeline,î said Bayer chief executive, Werner Wenning.

ìIt is also the best way of reasserting the importance of Germany as a pharmaceutical industry base,î he added.

Bayer said the creation of the new pharma subsidiary would lead to about 6,000 job cuts worldwide and generate Ä700m of annual cost savings after three years.

Schering chief executive, Hubertus Erlen, said his board had voted unanimously in favour of recommending the offer, because the companies had ìidentical goalsî as specialty pharma companies.

A merger of Bayer and Schering would create a company with strong sales of drugs for multiple sclerosis and certain forms of cancer; it would also be the world's biggest seller of contraceptives. Bayer has recently won US Food and Drug Administration approval for Nexavar (sorafenib), a renal cancer drug that it says could make annual sales of more than Ä1bn.

However, analysts have raised questions about Bayer's future direction, mainly based on its wide diversification. While other big pharma companies have been selling or spinning off non-core businesses in recent years to concentrate on innovative medicines, Bayer still has large units in over-the-counter (OTC) drugs, industrial polymers and pesticides.

A successful bid from Bayer would leave Merck having to review its future options. In a statement, Merck said it couldn't raise its offer because it did not think a higher price was justified and it would therefore not pursue a takeover of Schering.

ìWe are still convinced that a combination would have been a good option for both companies,î said Merck chief executive, Michael RÙmer.

The company's unsolicited bid, worth Ä77 a share, was rejected by Schering's board as too low. It is also understood that resistance to the offer was based on Merck's plans to get rid of the Schering name and Berlin headquarters.

Related article:
http://www.pmlive.com/index.cfm?advSearch=1&showArticle=1&ArticleID=4480

30th September 2008

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