Biotech Values

[Biowatch]

UPDATE 3-Bayer prepares higher offer for Schering
Wed Jun 14, 2006 7:23 AM ET

(Adds comment, background, updates share price)

By Mantik Kusjanto and James Regan

FRANKFURT, June 14 (Reuters) - Bayer <BAYG.DE> is preparing a new higher offer for Schering <SCHG.DE> after German rival Merck KGaA <MRCG.DE> snapped shares in the target, threatening to thwart its 16.5 billion-euro ($20.76 billion) takeover bid.

Bayer said on Wednesday it had raised its stake in Schering to over 30 percent and paid prices of up to 88 euros per share. This is above the current cash offer of 86 euros a share and sets a new minimum for any raised bid, potentially adding hundreds of millions of euros to the purchase price.

Bayer has to reach 75 percent by the end of Wednesday for its original tender to succeed. It would have to pay the new, higher price to all shareholders.

Bayer, which wants to forge a German pharmaceuticals powerhouse by acquiring Schering, said it was preparing to launch a new bid at 88 euros a share if the tender offer failed. It would be mandatory for Bayer to make a new bid as it now has more than 30 percent of Schering.

"This means Bayer must make a new offer to all Schering stockholders to acquire the shares they still own because Bayer now holds more than 30 percent of Schering stock," Bayer said.

Schering shares were up 1.8 percent at 88.79 euros by 1010 GMT, however, suggesting the market was expecting a still higher offer. Bayer stock eased 0.1 percent to 30.52 euros, while Merck shares rose 1.6 percent to 69.52 euros.

"We think that Bayer will take over Schering at least after the mandatory offer, which should also not be dependent on a minimum acceptance threshold," Merck Finck analyst Carsten Kunold said. "However, this will increase the total acquisition price for Bayer significantly."

Bayer currently has 36 percent of Schering, including 11 percent tendered by Allianz <ALVG.DE>. It said in a financial notice on Wednesday that the amount of stock tendered by investors fell to 29.77 percent from 36.78 percent.

Bayer also said it may continue to buy Schering shares in the open market or privately negotiated deals, and if any such purchases are made at prices above the new offer price of 88 euros, it will pay the higher price for all shares in the offer.

German newspaper Die Welt, which gave no source for the report, said Merck was talking to Bayer and hoped to achieve a price of 89-92 euros a share for Merck's stake in Schering.

SECOND ROUND

"We're ready for the second round," Bayer Chief Executive Werner Wenning said in a statement.

"The road has gotten rougher, but we're not losing sight of the clear aim we set ourselves: our plan is to combine our pharmaceutical activities with those of Schering to form a world-class German pharmaceutical company," Wenning added.

Acquisition of Schering would be the biggest deal in Bayer's 142-year history and create a healthcare group with sales of more than 15 billion euros.

Bayer said it had chosen to prepare a mandatory offer on the assumption that Merck would not tender the shares it now owned under the current offer. Merck has raised its Schering stake to 21.8 percent after purchasing an additional 2.1 million shares at an average price of 86.88 euros a share.

Investors are still trying to work out what Merck plans to achieve with its stake build-up. The company has remained silent beyond filings made with U.S. regulators, and again declined comment on Wednesday.

In one U.S filing on Tuesday, Merck said it initiated its recent purchases to secure its investment position in the event the Bayer offer was not successful.

"The purchaser has no current intention to launch a bid for all of outstanding shares of the company (Schering), although it reserves the right to do so when permitted or required to do so under German law," it said.

Merck also said it may continue to buy more Schering shares and would not tender its shares under Bayer's initial offer period. If the 75 percent minimum condition is met, Merck said it may tender its shares in the subsequent offer period.

Eager to up the pressure on Merck, Bayer filed suit in a U.S. court on Tuesday to stop Merck from voting its acquired Schering stake, saying Merck had violated U.S. securities law by not properly disclosing its intentions. Bayer asked the court to order Merck to divest the shares and award punitive damages in the suit filed in the U.S. District Court in Manhattan. (Additional reporting by Ben Hirschler in London)

[Seems odd that a German company is suing a German company in an American court over the purchase of a third German company.]

http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20060614:MTFH21407_2...