FRANKFURT, June 14 (Reuters) - Merck KGaA <MRCG.DE> bowed out of the race for Schering <SCHG.DE> on Wednesday, clearing the way for drugs and chemicals group Bayer <BAYG.DE> to win the contraceptive-pill maker for a raised price of 89 euros a share, valuing it at around 17.1 billion euros ($21.51 billion).
Merck, which had build up a more than 21 percent stake in Schering after its own bid for the Berlin-based company was topped by a rival bid from Bayer, said it would sell the shares to Bayer, ending uncertainty over the fate of Bayer's proposed acquisition.
Family-controlled Merck said it would make a one-off gain of 400 million euros from the roughly 3.7 billion euro deal. But it declined to comment on market talk that it may distribute part or all of that money in the form of a special dividend.
The acquisition of Schering, the biggest deal in Bayer's 142-year history, would create a healthcare group with sales of more than 15 billion euros.
Bayer said on Wednesday that Schering shareholders who had already tendered their shares under its original offer of 86 euros a share would also benefit from the higher price of 89 euros. The original offer valued Schering at 16.5 billion euros.
Bayer, which wants to forge a German pharmaceuticals powerhouse by acquiring Schering, has to reach 75 percent by the end of Wednesday for its tender to succeed. Together with Merck's stake in Schering, Bayer owns or has been offered shares totalling more than 80 percent of Schering, however.
Bayer currently has just over 36 percent of Schering, including 11 percent bought from Allianz <ALVG.DE>. It said in a financial notice issued earlier on Wednesday that the amount of stock tendered by investors was 29.77 percent, down from 36.78 percent previously.
Shares in Bayer recouped early losses, rising 6.8 percent to 32.65 euros at 1237 GMT, while Merck shares gained 4.4 percent at 71.49 euros. Schering shares were up 2 percent at 88.99 euros.
Bayer had been preparing for a long fight for control of Schering after Merck -- which is being advised by Deutsche Bank -- snapped up shares in the target, threatening to thwart its takeover bid. Merck's aggressive moves were highly unusual in Germany, where deal-making tends to be consensual.
Bayer announced a bid at 86 euros per share for Schering in March, beating a 77-euro-per share offer from Merck. Merck withdrew its offer but turned to buying shares in the market.
Bayer has said the transaction has potential synergy benefits of 700 million euros a year from the third year onwards and will lead to one-time charges of 1 billion euros.
"Bayer can still make this deal work at 89 euros but they may need to take a few more extra costs out of the business," UBS healthcare analyst David Beadle said in London .
Eager to up the pressure on Merck, Bayer had 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 said on Wednesday the suit had been dropped. (Additional reporting by Ben Hirschler in London)
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