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Schering turns down Merck offer

Board says bid to create biggest German pharma firm 'significantly undervalues company'

 
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Schering has rejected a Ä14.6bn unsolicited takeover offer from rival Merck KGaA, increasing speculation that the German pharmaceutical sector is about to witness a bidding war.

As Schering's share price rose on investor speculation that Merck's bid would be sweetened, Schering chief executive Hubertus Erlen insisted that his company had no reason to join up with another.

Family-controlled Merck has confirmed that it made an offer of Ä77-a-share, a 15.4 per cent premium to Schering's closing share price on Friday (March 10).

ìGermany was once known as the pharmacy of the world,î said Jon Baumhauer, who represents the Merck family's 73 per cent stake on the group's board. ìThis deal would again bring us to the front of the international pharmaceutical industry.î

Erlen said the board had been informed of the offer at the weekend and had decided that it ìsignificantly undervalues the companyî.

ìWe looked at it and found that we had better prospects as an independent specialised company,î he said. ìShould the offer still come, we will not be able to recommend it to our shareholders.î

The head of Schering's supervisory board, Giuseppe Vita told reporters he expected a ìwhite knightî to launch a counter-bid, without naming any potential candidates.

A deal between Merck and Schering, two midsize companies, would create a significant European player, with annual sales of more than Ä11bn. Consolidation in the German pharma sector has been on hold since Hoechst merged with France's Rhone-Poulenc in 1998 to form Aventis in 1998.

Merck's move for Schering appears to be fuelled by its desire to boost its branded drug portfolio. While its best known product is cancer drug Erbitux, in recent years its chemicals division has overshadowed its pharmaceuticals unit, mainly thanks to sales of liquid crystals.

A merger with Schering would also beef up Merck's small presence in North America and Japan.

In November, Bernhard Scheuble stepped down as chief executive of Merck, after mounting tension with the company's owners over its future direction. He was replaced by Michael RÙmer, who vowed not to change Merck's strategy.

Schering is the world's biggest manufacturer of oral contraceptives, including the top-selling birth control pill, Yasmin. It also sells Betaferon for multiple sclerosis.

30th September 2008

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