Merck and Bayer strike deal over Schering shares

Following accusations by Bayer of "dubious tactics", Merck KGaA is to sell its 21.4% (21.8% according to SEC calculations) stake in Schering AG to Bayer.

Discussions over the matter between Bayer's ceo Werner Wenning and Dr Michael Roemer, chairman of the Merck KGaA executive board, came hot on the heels of Bayer's filing of a damages suit against Merck in the US and its announcement that it would launch a "mandatory offer" if Merck refused to sell. The suit, filed in the US because about 19% of Schering's stock is held by US investors and Merck has operations in New York, accused Merck of deliberately delaying the filing of the required disclosures. Bayer has said it will now withdraw the suit.

"The effect of Merck's tactics has been to withhold important information from the financial markets, putting Schering stockholders at a disadvantage and harming Bayer," said Dr Roland Hartwig, Bayer general counsel, who said that Merck had violated US law by failing to disclose its "strategic intentions".

Merck's 41,529,770 shares will be sold for Euro 89 each, making the total value of the transaction €3.7bn, and will result in "an extraordinary gain" of €400m for Merck, which will contribute towards its second quarter figures.

Bayer announced its friendly takeover offer for Schering on 23 March, which exceeded Merck's offer by 12% and was supported by both the management and supervisory boards of Schering. Merck then withdrew from the bidding saying that the price of €86 per share could not be justified.

However, with Bayer's offer expiring on 14 June and conditional on a mimimum acceptance threshold of 75% of Schering shares, on 12 June "Merck purchased huge numbers of Schering shares at prices similar to the offer price without enlightening the financial markets as to the background to this action", according to Bayer.

In a filing to the US Securities and Exchange Commission yesterday, Merck said that it had increased its stake in Schering to 21.8% from 20.7%, while Bayer was believed to be holding around 55.53%.

The deal between Merck and Bayer is now expected to seal the takeover, which, if it goes through, will be the biggest in Bayer's 142-year history, creating a the "Bayer Schering Pharma" health care group with predicted sales of over €15bn.

Further to the shares agreement, Merck and Bayer have also agreed to "consider the possibility of expanding current co-operations and developing further ones".

"All three companies concerned will benefit from this step," added Wenning. "We are very optimistic that we can now secure at least the three-quarters of Schering's capital stock that we were aiming for, enabling us to quickly begin the integration process."