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End to a Mercky deal

14th March 2006

14032006_PillPackets1s.jpgGermany is about to have a new national champion in the pharmaceuticals industry, said the Financial Times.

Bayer, which emerged as a 'white knight' bidder and on Friday morning trumped an unsolicited offer from rival Merck, has won the battle for Schering. Bayer said the deal would "reassert the importance of Germany as a pharmaceutical industry base" reports the BBC. Analysts have been predicting further consolidation in the European drugs sector.

Merck could probably have afforded to pay more than Bayer’s €86 per share in cash, since family-controlled companies can countenance much longer pay-back times, but Merck said it was not prepared to put in a higher bid without the support of Schering's board of directors.

Schering's chief executive, Hubertus Erlen, said his board had voted unanimously in favour of recommending the offer, because the companies had "identical goals" as speciality pharmaceuticals companies; there are synergies in the crucial area of cancer treatment as well as unspecified revenue synergies from combining drugs research and marketing.

Bayer plans to cut €700m of costs, including 6,000 jobs worldwide. Bayer’s commitment to move the pharma business to Berlin will help win friends among future colleagues at Schering.

Merck's offer had been unwelcome partly because of its concentration on lower-end generic medicines. Merck would also have killed off the Schering name and Berlin headquarters. For Bayer, the acquisition is less transformational than it would have been for Merck.

Bayer said it would fund the deal through a combination of cash, fresh equity and borrowing. It hailed the deal as a way of returning Germany to the position it had held 20 years ago as "pharmacy to the world" said the Financial Times.

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