[These M&A machinations make more sense with two details in mind: 1) The buyer of Schering AG needs approval of 75% of Schering’s shares; and 2) If any company acquires 30%+ of Schering’s shares (as Bayer has already done), they must offer to buy all remaining shares on the same (or better) terms.]
>> Merck motives eyed in duel with Bayer for Schering
Mon Jun 12, 2006 6:00 PM ET By Sitaraman Shankar
FRANKFURT, June 12 (Reuters) - Spurned suitor Merck KGaA <MRCG.DE> wants to be more than just a spoiler of Germany's big drug sector union between Bayer AG <BAYG.DE> and Schering AG <SCHG.DE>, analysts say.
Merck has through market purchases cornered a 20.7 percent stake in Schering, threatening to derail Bayer's 16.5 billion-euro ($20.8 billion) bid for the Berlin-based drugmaker.
Bayer, which needs 75 percent of Schering by midnight on Wednesday for its bid to succeed, had to make huge market purchases to counter Merck, buying about 23 percent of Schering on Friday in a deal valued at around 3.9 billion euros based on Friday's closing price.
Including the 36.78 percent that has been tendered in a public offer, Bayer has now secured just over 60 percent of Schering, making reaching its target touch-and-go.
"It's become very difficult for Bayer to reach the threshold," said Silke Stegemann, an analyst at Landesbank Rheinland-Pfalz. "Either the deal will collapse or there could be an agreement between Merck and Bayer."
Stegemann said Merck could be interested in a marketing agreement or cooperation on the Parkinson's disease drug sarizotan, or a share of some Bayer markets or patent rights. But such a deal might pose problems for Bayer as it might be seen giving preference to one shareholder, analysts said.
Another possibility is that Merck is open to the deal and wants to retain a strategic holding.
"It could be that Merck just wants to be part of a new German pharma powerhouse," said a London-based analyst, drawing a parallel with Novartis AG's <NOVN.VX> stake in Roche Holding AG <ROG.VX>.
German newspaper Handelsblatt said late on Monday that Merck did not want to scupper Bayer's deal, but wanted a price of over 90 euros a share to sell its Schering shares to Bayer.
Citing company sources, the paper said Bayer had made contact with Merck, but had not so far signalled it would make concessions. Bayer declined to comment on the report and Merck could not be reached.
On Monday, trading in Schering stock was heavy, at nearly 7.9 million shares, far higher than the 30-day daily average of 3.15 million, with the price unchanged at 86.25 euros.
Merck, which had to drop a takeover offer for Schering in March after Bayer made a higher bid, has remained silent on the motives behind its share build up. A spokeswoman declined to comment on Monday.
Bayer shares ended 2.5 percent lower at 32.28 euros, their lowest close since early March, on worries the deal would fail, while Merck stock closed down 2.7 percent at 71.98 euros on worries it would make a higher bid for Schering.
BAYER HITS BACK
Bayer's massive share purchase on Friday makes it very difficult for Merck to win control of Schering.
If its offer failed, Bayer would still have the 23 percent of shares bought from the market. It would then need just 2 percent to block any Merck deal and could buy more shares from the market to try and get to 51 percent, although a holding of 30 percent would trigger a mandatory offer to shareholders.
"If the Bayer offer were to fail, it would be likely that they would contemplate raising their stake to 51 percent through the market," said an industry source.
Bayer's room for manoeuvre in the market is limited because, if it pays more than 86 euros per share -- the price in its public tender -- it will have to raise its offer to all shareholders. Bayer may also not be able to make another bid for Schering if the current offer fails unless it has the support of Schering and clearance from German regulators, analysts said. [Everything in Germany needs approval from regulators.]
"If Bayer fails and is not pursuing a second bid, Merck might increase its stake to 30 percent and make a mandatory offer to all outstanding Schering shareholders," WestLB analyst Oliver Kaemmerer said in a research note.
A Schering spokesman said on Monday that the company supported Bayer's offer and hoped the situation would clear soon. <<
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