Markus Schreiber  /  AP
Entrance of the headquarters of the German pharmaceutical company Schering in Berlin is seen in this file photo. German pharmaceutical and chemical company Bayer AG said Thursday it would make a $19.5 billion white-knight offer for Schering, bidding against a hostile takeover effort from Merck.
updated 3/24/2006 12:43:11 PM ET 2006-03-24T17:43:11

Bayer AG’s 16.3 billion euro ($19.6 billion) offer for drugmaker Schering AG was embraced enthusiastically by its target Friday as German rival Merck abandoned its own takeover offer.

Bayer’s bid late Thursday trumped Merck’s hostile 14.9 billion ($17.9 billion) offer for Schering made on March 13.

Bayer CEO Werner Wenning said 6,000 jobs would likely be eliminated “in the upcoming years” after the acquisition, but did not provide exact details. He added that the company did not plan to divest any Schering units.

Wenning said the acquisition plan will be filed with German financial watchdog BaFin, and Bayer expects to launch the cash takeover in mid-April. Schering Chief Executive Hubertus Erlen said becoming part of Bayer made strategic sense.

“Both businesses are complementary and follow the same strategy,” he said. “Together they will be even more competitive internationally.”

Merck KGaA, in a brief statement, said Friday it abandoned its offer because its executive board had “reached the conclusion that a higher price per Schering share is not justified ... and has therefore decided not to pursue the planned takeover of Schering.”

Schering had rebuffed Merck’s March 12 offer as too low. Analysts had contended that Schering would likely hold out for a higher bid — but speculation centered on Switzerland’s Novartis, not Bayer.

Bayer agreed to pay 86 euros ($103.67) per share, or 12 percent more than Merck’s offer of 77 euros ($92.82) per share.

Merck already has had about 4.9 percent of Schering’s shares tendered to it, and could earn some 250 million euros ($301 million) if the sale to Bayer goes through.

In a conference call, Erlen said talks with Bayer began March 13 and he realized that Schering could no longer remain independent.

“Schering’s executive board unanimously supports the Bayer offer,” he said, adding that a supervisory board meeting to endorse the deal would be called as soon as possible.

Pending regulatory approval in Europe and the United States, the combination of Schering and Bayer’s pharmaceuticals unit will be named Bayer-Schering Pharmaceuticals and remain headquartered in Berlin.

Schering is the only company on Germany’s DAX index of blue chip stocks to be headquartered in Berlin, and a major employer in the capital, where unemployment is nearly 19 percent.

Berlin Mayor Klaus Wowereit said the city government would soon discuss with Bayer management “the future of the company and the question of job security.”

The deal sends a strong signal that Bayer is putting new emphasis on its pharmaceuticals unit. Since it recalled its anti-cholesterol treatment Baycol in 2001 because of safety issues, Bayer has tried to find a partner for the unit.

By buying Schering, Bayer will have access to its popular oral contraceptive, Yasmin, which posted sales of 586 million euros ($706.4 million) in 2005, up 36 percent from 2004.

With Schering, Wenning said the new company would likely see as much as 9 billion euros ($10.8 billion) in sales annually from pharmaceuticals and overall health care related sales of 15 billion euros ($18 billion).

Bayer plans to finance the deal by spinning off its H.C. Starck and Wolff Walsrode subsidiaries, and using a blend of equity and debt capital.

“This will maintain a stable balance sheet structure,” Bayer Chief Financial Officer Klaus Kuehn said. “We anticipate retaining a good investment-grade rating and adhere to the important goal of maintaining an A rating.”

Founded in 1863, Bayer invented Aspirin in 1897 and has since gone on to make everything from vitamins to agricultural chemicals. Its best known products include Alka-Seltzer and One-A-Day vitamins. The company employs some 93,700 workers.

Founded in 1851 as a pharmacy, Schering AG has since grown to a corporation that employs 24,500 people worldwide. Schering’s connection to its former U.S. subsidiary, Kenilworth, N.J.-based Schering-Plough, was broken during World War II and the companies are no longer related.

Merck KGaA, also founded as a pharmacy in 1668, is the oldest pharmaceutical business in the world. It has been entirely separate from the Whitehouse Station, N.J.-based Merck & Co. since the end of World War I.

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