German Drugs Firm Snubs £10bn Offer

Schering, the German drug company that makes the world’s leading oral contraceptive, Yasmin, yesterday began a desperate search for a "white knight" merger partner after rejecting a €14.6bn (£10bn) takeover approach from domestic rival Merck.

As Schering shares rose significantly above the €77-a-share level of Merck’s cash bid, investors held out for a counter-offer from a foreign group or private equity house to thwart the creation of Germany’s biggest pharmaceutical company.

Giuseppe Vita, head of Schering’s supervisory board, said in Milan the company, which also makes Betaferon for treating multiple sclerosis, was worth €90-€100 a share and he expected a white knight to emerge. "I think they will be knocking on our door soon."

But Michael Mecker, finance director at Merck, which makes Erbitux for combating colo-rectal cancer as well as liquid crystals for flat screens and mobile phone displays, insisted that big Schering shareholders did not back the board’s instant rejection of the approach.

"We spoke to Allianz [the insurer holding 11.8% of Schering] and had the impression they don’t have the same concerns as Schering," he said. Merck is 73% owned by the family of the same name which is injecting €1bn into the proposed deal and would retain 60% of the merged group.

The move to form an all-German solution to consolidation in the drugs sector began badly when the Schering board said there were no negotiations taking place. But Merck said its senior executives had met the Schering board in Berlin last Friday.

Merck’s effort to create a German "national champion" mirrors the government-backed takeover by French drug group Sanofi of Aventis that thwarted an approach by the Swiss firm Novartis.

Novartis was heavily backed yesterday as a potential counter-bidder for Schering. Europe’s pharmaceutical sector is in ferment but Switzerland’s Serono, the leading bio-tech company, is still looking for a buyer after a €15bn auction this year was aborted. Germany’s Altana is meanwhile trying to offload its drugs business.

Several analysts suggested that medium-sized drugs companies such as Schering and Merck needed far greater scale to fund the expansion of their portfolios as their own research pipeline ran dry. But Schering, which secured record sales of €5.3bn and profits of €928m last year, declared it intended remaining independent.

Merck, which had sales of€5.9bn and profits of €883m last year, said the merged group would be world-class with combined sales of €11.2bn.

Michael Roemer, chief executive, said: "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 pharmaceuticals industry."

Merck said the merger would bring savings of €500m a year by 2009. It said it had raised a credit facility from Deutsche, Bear Stearns and Goldman Sachs banks and would repay some of this after a merger by securing a capital increase of between €500m and €4bn, depending on the acceptance rate.