Bayer bids for Schering

Bayer beats Merck's offer; announces a near $US20 billion offer for Schering.

25 March 2006
DELHI, INDIA

Germany's drug and chemical maker Bayer has announced a near $US20 billion ($28.1 billion) offer for its smaller rival, Schering, topping a $US17.9 billion offer by Germany's Merck, in a surprise bid.

Bayer would offer 86 a share in cash for Schering. If the company succeeds in its bid, the consolidation will greatly help Germany's prominance in the pharmaceutical industry.

Berlin-based Schering said it would recommend the offer to its shareholders, indicating that Bayer was likely to complete the takeover unless Merck raised its bid or another suitor appeared.

For Bayer, which has struggled in drugs since the recall of its anti-cholesterol treatment, Baycol, due to safety concerns in 2001, and which failed a few years ago to find a partner for its troubled pharmaceutical business, the deal is a striking return to its roots.

Although health care products account for less than 40 per cent of Bayer's annual revenues, which were about $US30.5 billion last year, the Schering acquisition could make health care the largest part of Bayer, with projected sales of $US18 billion a year.

Bayer's biggest business is making polyurethane, polycarbonates and other manufacturing materials, which accounted for about $US13 billion in sales last year.

Schering is the world leader in oral contraceptives and also specialises in cancer drugs, while Bayer has focused its pharmaceutical research on cancer and cardiovascular drugs.

Germany's fragmented drug industry is viewed as ripe for consolidation, having missed out on the wave of mergers that created global goliaths such as GlaxoSmithKline, Sanofi-Aventis and Pfizer. Bayer, Germany's largest pharmaceutical company, ranks only 16th globally.

Analysts had predicted a rival bid for Schering after Merck's unsolicited offer last week put the company into play. But few focused on Bayer, speculating instead about the Swiss Novartis.

Even now some analysts question the logic of combining a drug specialist like Schering with Bayer, a conglomerate that sells everything from indigestion tablets and vitamins to farm chemicals.

Bayer said the merger could result in about 6000 jobs being eliminated, roughly 10 per cent of the combined work force. The company, based in the Rhine River town of Leverkusen, estimates it will reap Euro 700 million ($1.12 billion) in annual savings from the merger by 2009.