Merck, whose €77-a-share bid for Schering was trumped by Bayer's offer of €86 late on Thursday, said it would walk away from the planned takeover because a higher price was not justified.
If Bayer's bid goes through, it will create a €40bn European pharmaceuticals giant with annual sales of about €15bn and restore some of its previous status to Germany's drug industry, which used to be known as the chemist to the world.
Schering, which makes the world's leading oral contraceptive, Yasmin, said it would recommend Bayer's offer to its shareholders. Schering's chief executive Hubertus Erlen described the offer as "extremely attractive". He said: "It is not possible for Schering to maintain its independence, given the Bayer offer." Its biggest shareholder, the Munich-based insurance group Allianz, kept its options open yesterday, but reiterated previous statements that it would act like a "normal shareholder".
Schering began a search for a "white knight" merger partner last week after immediately rebuffing Merck's €14.6bn takeover approach as too low. Its shares soared above the €77 level of Merck's cash bid as investors held out for a counter-offer from a foreign rival or private-equity house.
Bayer's chief executive Werner Wenning plans to slash 6,000 jobs, generating €700m of annual cost savings after three years, by streamlining production sites and removing overlap in research and development. He said the company would use Schering's network in the United States to market Bayer's new drug hope, the cancer treatment Nexavar. He does not expect any opposition to the deal from European or US regulators.
Bayer will also get its hands on Schering's multiple sclerosis treatment Betaseron, which is expected to reach €1bn in annual sales. The combined drugs business, called Bayer-Schering Pharmaceuticals, will notch up annual sales of €9bn, with strengths in heart drugs, gynaecology and cancer, and will be based in Berlin.
Bayer's takeover of Schering is likely to fuel hopes of a wave of consolidation in the European pharmaceuticals industry, with Britain's AstraZeneca tipped as a possible takeover candidate.
Bayer will fund the acquisition by €3bn of existing cash resources and a new credit line provided by Credit Suisse and Citigroup.Reuse content