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Schering to fight takeover bid from Merck KGaA

Published on 14/03/06 at 02:44pm

A hostile takeover bid has been launched by Merck KGaA for rival German pharmaceutical company Schering.

Both companies are enjoying strong growth across their businesses, but remain relative minnows in an industry increasingly dominated by big players such as Pfizer, GSK and Sanofi-Aventis.

Merck has made an all-cash offer for the shares of Schering at E77 per share, valuing the company at E15 billion (10.3 billion), and says a merger would create a much stronger and more competitive company.

Michael Roemer, chairman of the board of Merck, said the takeover would be an 'ideal combination' for both sides. "It provides both companies with the unique opportunity to take a quantum leap and become more competitive and continue to thrive in the consolidating global pharmaceutical industry," he said.

"We believe we can create a more competitive global platform for further sustainable and profitable growth, through stronger resources and focus on R&D, through a larger and more balanced portfolio in key therapeutic areas and through increased geographic reach."

Schering's management have been quick to reject the hostile bid, saying it seriously undervalues the company, but the company's shareholders will be the people Merck need to persuade.

Schering enjoyed strong growth in 2005, sales rising 8% to 5,308 million, net profit up 23% to E619 million and earnings per share 23% higher.

Growth has been fuelled by a 10% increase in sales of multiple sclerosis treatment Betaferon and rapid uptake of Yasmin, now the world's biggest selling oral contraceptive, and intrauterine contraceptive Mirena.

Merck says the combined companies would have ethical pharmaceutical sales of  E5.6 billion in 2005 and a combined R&D budget of E1.3 billion, which it believes would provide economies of scale, while permitting a focus on specialist markets.

Michael Roemer's vision of the merged company is for it to focus on oncology, to be led by Merck's Erbitux, which is currently enjoying strong growth, and has just acquired a second indication.

The combined company's enhanced product pipeline will comprise more than 30 projects in clinical development, 15 of which are in phase III or filed.

Merck says a larger R&D budget and pipeline will improve the product attrition rate and enable products to reach the market faster.  

It also claims that a merged company would also have the salesforce muscle to have effective launches of new products in the two biggest markets in the world, the United States and Japan.

Finally, Merck also wants to create a company which will be more attractive to biotech and specialist pharma companies seeking partners to co-develop and co-market new drugs.

Michael Roemer has been leading Merck for just four months, having taken over from Bernhard Scheuble who stepped down after repeated clashes with the company board over strategy.

Scheuble had advocated organic growth, but Roemer's plan has won the favour of Merck's board, and is also likely to gain the backing of Germany's politicians.

Analysts predict that Merck may well have to raise its initial offering, but many believe Schering's board cannot defeat the takeover bid in the long-term.

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