Schering's Board Rejects Merck's $18B Bid

By MATT MOORE Posted 15 March 2006 @ 04:26 am EET     Print     Reprint     E-Mail     Comments

FRANKFURT (AP) - Schering AG's board rejected a 14.9 billion euro ($17.7 billion) takeover bid from fellow German drugmaker Merck KGaA on Tuesday, and its chief executive insisted the company was better off independent.

Click to Enlarge Hubertus Erlen, CEO of German pharmaceutical company Schering briefs the media ...

Schering CEO Hubertus Erlen said the directors supported his rejection of Merck's acquisition attempt, which would create Germany's second-biggest pharmaceutical company.

The board believes the offer worth 77 euros ($91.79) per share, made Sunday, "doesn't correspond to the value of Schering as an independent, successful, highly specialized, research-oriented pharmaceutical company," Erlen said.

The board urged Schering to take "all options independently" to increase the company's value, Erlen said. He didn't elaborate.

Speaking for his management team, Erlen said he wanted to convince shareholders that Schering was well-focused and would succeed on its own, despite its relatively small size.

"We focused early on what we can really do well, and are convinced that we don't need stronger volume to work successfully," he said.

For years, Schering's name has circulated as a potential candidate for a takeover and analysts from Landesbank Rheinland-Pfalz said they don't believe the company would be able to find a better offer to fend off Merck.

"Up until last weekend, nothing has happened. Why would a competitor now want to enter the bidding war when the Berlin-based company was previously available for much less money? Schering is no 'hidden champion' that everyone is dying for," the analysts wrote in a research note.

Merck Chief Executive Michael Roemer told reporters and analysts Monday that the offer presented a 15 percent premium on Schering's closing price at the end of last week.

A Merck spokesman, Walter Huber, said the company didn't plan to raise its bid.

"With that price we are firm," he said.

On Tuesday, in a letter printed in the Berliner Zeitung, Roemer appealed to Schering's shareholders and employees to see that a combination of the two companies would yield a greater company for Germany and give it access to more markets worldwide.

"We do not see any reason why a large international champion should not emerge from Germany, a traditional seat of the pharmaceutical industry," Roemer co-wrote with Jon Baumhauer, the head of Merck's board of directors. "Long-term success determines our thinking and our actions."

Hopes that a rival might trump the bid caused shares of Schering to surge more than 25 percent Monday. On Tuesday, Schering closed down 1 percent at 83.75 euros ($99.93), before Erlen's statement.

Shares of Merck plunged 4.2 percent to 76.56 euros ($91.35) after Moody's Investors Service placed its ratings on review for possible downgrade after its announced its pursuit of Schering.

Moody's said it was concerned that while a takeover would beef up and diversify Merck's business and offer cost savings, it would result in a "significant deterioration of its capital structure and cash flow to debt ratios."

Founded in 1851 as a pharmacy, Schering AG has since grown to a corporation that employs 24,500 people worldwide. Schering's connection to its former U.S. subsidiary, Kenilworth, N.J.-based Schering-Plough, was broken during World War II and the companies are no longer related.

Merck KGaA, also founded as a pharmacy in 1668, is the oldest pharmaceutical business in the world. It has been entirely separate from the Whitehouse Station, N.J.-based Merck & Co. since the end of World War I and employs some 29,000 people.