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Schering shares jump after Merck offer

Shares of Schering AG soared 26 percent Monday after rival German drugmaker Merck KGaA’s unsolicited offer to buy the company for 14.6 billion euros ($17.4 billion).
/ Source: Reuters

Shares of drugmaker Schering AG soared more than 25 percent Monday as markets seemed to believe another bid could exceed Merck KGaA’s 14.9 billion euros ($17.7 billion) offer for the company.

Investors sent the company’s stock to 84.12 euros ($100.28), suggesting Merck may have to raise its offer of 77 euros ($91.77) per share or face a competing bid for the maker of multiple sclerosis treatment Betaferon and the oral contraceptive Yasmin.

“They are waiting for a white knight,” said Thorsten Strauss, an analyst with NORD/LB Research in Hanover. “And I think they also expect a higher offer from Merck.”

Schering Chief Executive Hubertus Erlen refused to endorse the deal, saying Merck’s bid undervalued Schering and recommending shareholders ignore it.

Merck, which has not said if it would consider raising its offer, remained confident that it could acquire the Berlin-based company.

“Irrespective of the management board’s recommendation, the decision to accept our offer lies with the shareholders,” said Merck CEO Michael Roemer. “We are confident that they will consider this offer — which represents full and immediate value — as attractive.”

Neither Germany’s Merck nor Schering are related to the American companies with similar names although there were connections years ago.

There had long been speculation that Schering could seek a merger with Merck or Germany’s Altana AG, but Schering Chief Financial Officer Joerg Spiekerkoetter sought to dampen rumors last month, saying “neither company makes strategic sense to us.”

Analysts say many mid-sized drug companies, trying to stay competitive, have mulled combining their operations and research with others to find the next profitable pharmaceutical offering and to combine their existing research.

In 2004, French drugmaker Sanofi acquired Franco-German rival Aventis in a 53.5 billion euro ($72 billion) tie-up that created the world’s third biggest pharmaceutical company.

Roemer said Merck’s offer for Schering would make the combined company more competitive on a global scale, giving it more leverage and clout in big markets including the United States and Japan, with combined sales of approximately 11.2 billion euros($13.3 billion).

“This is an ideal union for both companies,” he said Monday.

Added Elmar Schnee, head of Merck’s pharmaceuticals unit: “All businesses of Schering are complementary to our businesses.”

Merck, already the world’s third biggest maker of generic drugs, would become the No. 2 drugmaker in Germany behind Bayer AG if it brought Schering into its fold. Merck’s best known drug is the cancer fighting Erbitux, which it sells internationally for its partner, New York-based ImClone Systems Inc.

Merck Chief Financial Officer Michael Becker told reporters that the company approached Allianz AG, which holds 11.8 percent of Schering, before announcing the offer Sunday.

“We spoke to Allianz and had the impression they do not have the concerns that Schering has,” Becker said. Allianz would not immediately comment.

Becker said the offer would last six weeks and close in mid-May. “We want to purchase 100 percent of the Schering shares and once we have 95 percent, we aim for a delisting.”

Germany’s financial watchdog, BaFin, said it would examine the proposed deal as a matter of routine.

Merck shares fell nearly 3 percent to 81.21 euros ($96.81) in Frankfurt trading Monday.

Wilhelm Simson, the head of Merck’s supervisory board, said in a conference call that the company has no plans to unload its chemical business to pay for a takeover of Schering and that if the deal is successful, no part of Schering would be divested.

“A breakup of Schering would be absurd,” he said.

Schering posted a 23 percent increase in 2005 earnings to 619 million euros($737.7 million) as sales rose 8 percent to 5.3 billion euros ($6.3 billion).

Merck earned 658.9 million euros ($785.3 million) in 2005, virtually unchanged from the previous year. Sales rose 9.9 percent to 5.87 billion euros ($6.9 billion).

Merck KGaA, founded as a pharmacy in 1668, is the oldest pharmaceutical business in the world.