Bayer wins Schering for $22 billion as Merck quits
Wed Jun 14, 2006 1:13pm ET
FRANKFURT, June 14 (Reuters) - Bayer finally won control of Schering on Wednesday for an increased price of almost $22 billion as Merck KGaA bowed out and sold its stake to the larger drugs and chemicals group.
Merck, which had built up a holding of more than 21 percent in Schering after its own bid for the contraceptive-pill maker was topped by one from Bayer, said it would sell the Schering shares to Bayer for 89 euros each.
The move ends uncertainty over the fate of Bayer's proposed acquisition and provides a windfall for both Schering and Merck shareholders. Bayer investors, meanwhile, cheered the fact the deal would go ahead, and its stock jumped more than 8 percent.
"It's definitely good that a solution has been found. Now Schering can be integrated as planned," said Juergen Boehlen, a fund manager at Merck Finck Investment who holds Bayer shares.
Bayer said investors in Schering who had already tendered their shares under its original offer of 86 euros would also benefit from the higher price of 89 euros.
At 89 euros a share, Schering is valued at around 17.1 billion euros ($21.51 billion), against the original offer of around 16.5 billion euros.
"Bayer can still make this deal work at 89 euros but they may need to take a few more extra costs out of the business," said UBS healthcare analyst David Beadle in London.
Schering's supervisory board chairman broadly welcomed the deal, which allays fears expressed by Schering's chief executive this week that a battle for control could lead to the sale of one or more of its assets as a compromise.
"We are relieved because a possible deadlock between the two main shareholders pulling in different directions has been avoided and also because a possible break up seems to be off the table now," Norbert Deutschmann told Reuters Television.
But we still have concerns because the deal has become more expensive for Bayer, so the question of how to cut costs has become more prominent and this normally means more pressure on jobs," he added.
Family-controlled Merck said it would make a one-off gain of 400 million euros from the roughly 3.7 billion euro deal. But it declined to comment on market talk that it may distribute part or all of that money in the form of a special dividend.
The acquisition of Schering, the biggest deal in Bayer's 142-year history, will create a healthcare group with sales of more than 15 billion euros a year.
Bayer, which wants to forge a German pharmaceuticals powerhouse by acquiring Schering, had to reach 75 percent by the end of Wednesday for its tender offer to succeed -- a target it should now reach comfortably.
"We are very optimistic that we can now secure at least the three-quarters of Schering's capital stock that we were aiming for, enabling us to quickly begin the integration process," Chief Executive Werner Wenning said in a statement.
Bayer currently has just over 36 percent of Schering, including 11 percent bought from Allianz. It also has nearly 30 percent tendered by investors, which, together with Merck's stake in Schering, gives it a total of well over 80 percent.
Shares in all three companies rose, with Bayer recouping early losses to surge 6.9 percent to 32.66 euros by Wednesday's close, with volume around three times the 30-day average, as investors welcomed the news the takeover would go through.
Merck shares gained 6 percent to 72.58 euros on hopes for a cash payout, while Schering rose 2.1 percent to Bayer's raised offer price of 89 euros.
Bayer had been preparing for a long fight over control of Schering after Merck, which is being advised by Deutsche Bank, snapped up shares in the target, threatening to thwart its takeover bid.
Merck's aggressive moves -- which some bankers likened to those of a hedge fund -- were highly unusual in Germany, where deal-making tends to be consensual.
Despite the bad blood generated by the spat, however, Bayer said it and Merck would look into possible opportunities for cooperation
Bayer announced a bid at 86 euros per share for Schering in March, beating a 77-euro-per share offer from Merck. Merck withdrew its offer but turned to buying shares in the market.
Bayer has said the transaction has potential synergy benefits of 700 million euros a year from the third year onwards and will lead to one-time charges of 1 billion euros.
Eager to up the pressure on Merck, Bayer had filed suit in a U.S. court on Tuesday to stop Merck from voting its acquired Schering stake, saying Merck had violated U.S. securities law by not properly disclosing its intentions. Bayer said on Wednesday the suit had been dropped. (Additional reporting by Ben Hirschler in London and Karin Strohecker in Berlin)
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