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Schering shares surge as Bayer rides to rescue
Fri Mar 24, 2006 5:50 AM ET

FRANKFURT, March 24 (Reuters) - Schering friendly "white knight" offer for the drugmaker that trumped a bid from German rival Merck KGaA.

Analysts said the 5 percent rise in Schering stock indicated the market was waiting for a revised bid from Merck, but Merck remained silent.

Bayer said late on Thursday it would bid 16.3 billion euros ($19.7 billion) for Schering or 86 euros per share in cash, a 12 percent premium to Merck's offer, which Schering has rejected as too low.

If Bayer's bid goes through, it will create a group with sales of around 15 billion euros, returning to some prominence a German drugs industry that has lost its status as chemist to the world over the past two decades.

Martin Hall, research analyst at stockbroking and asset management firm Eden in London, said Merck could strike back but Bayer would ultimately prevail.

"The stock market thinks Merck will come back -- but the point is whatever Merck comes back with, Bayer will top. So does Merck just do it to be sadistic or do they quit now?"

"I think that they (Merck) are in a no-win situation. It was always Schering's preference to go with a branded player ... and that's what they've achieved."

Dealers cited a Lehman Brothers note saying it believed Merck could go as high as 95 euros, adding that if Merck did not raise its offer it would have to invest in developing infrastructure in the United States for its new cancer drugs.

The deal will give Bayer access to Schering's contraceptive Yasmin, the world's top-selling oral birth-control drug, and multiple sclerosis treatment Betaseron, which Schering expects will touch 1 billion euros in annual sales.

The combined drugs business, called Bayer-Schering Pharmaceuticals, will have sales of 9 billion euros and be based in Berlin. The new grouping will have strengths in cardiac drugs, gynaecology and cancer.

Schering's shares, which have risen by more than a third since Merck launched its 77-euro-per-share bid earlier this month, climbed 4.2 percent to 88.55 euros by 1001 GMT.

Bayer rose 1.7 percent, while Merck fell 1.7 percent in a slightly higher German market <.GDAXI>.


Schering said it would recommend Bayer's bid to its shareholders, and its chief executive, Hubertus Erlen, described Bayer's offer on Friday as "extremely attractive".

"It is not possible for Schering to maintain its independence, given the Bayer offer," he told reporters in Berlin, where his company is based.

Bayer Chief Executive Werner Wenning told investors in a conference call he saw around 6,000 possible job reductions from the union, with production sites to be rationalised and synergies in research and development.

Wenning said the company would use Schering's network in the United States to market Bayer's new drug hope, cancer treatment Nexavar.

Bayer said that despite the planned acquisition -- which would be the biggest in its 142-year history -- it was confident of retaining a "solid" investment grade rating.

It told investors it maintained a target for a long-term strategic single-A rating.

Bayer said the purchase price would be financed by 3 billion euros of existing cash resources and a new credit line provided by Credit Suisse and Citigroup.

The deal will be refinanced through a mix of equity, term debt, hybrid instruments and the proceeds from the sale of non-core assets including H.C. Starck and Wolff Walsrode, part of its MaterialScience plastics and chemicals unit.

Schering's biggest shareholder, Munich-based insurance group Allianz, kept its options open on Friday in the battle for Schering and declined to comment on how it would act.

However, it reiterated previous statements that it would act as "a normal shareholder". Allianz has said its industrial holdings are not strategic. (Additional reporting by Ben Hirschler in London, Louis Charbonneau in Berlin and Michael Able in Munich)

Source: Reuters

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