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Bayer Announces 20 Billion Dollar Offer For Rival Company Schering

By Mark Landler

In a surprise bid that could help partially restore Germany’s historic prominence in the pharmaceutical industry, the drug and chemical giant Bayer announced a nearly $20 billion offer on Thursday for its smaller rival, Schering, topping a $17.9 billion offer by Merck of Germany.

Bayer, a 143-year-old company best known as the inventor of aspirin, said it would pay 86 euros ($103) a share in cash for Schering, which last week rebuffed an offer of 77 euros ($92) a share by Merck. Schering and Merck are German companies not related to the American drug giants Schering-Plough and Merck & Co.

Schering, based in Berlin, said it would recommend the offer to its shareholders, which indicated that Bayer was likely to complete the takeover unless Merck raised its bid or yet another suitor entered the fray. An executive close to Merck said it would assess the offer before deciding how to respond.

For Bayer, which has struggled in drugs since the recall of its anticholesterol treatment Baycol over safety concerns in 2001, and which tried fruitlessly a few years ago to find a partner for its troubled pharmaceutical business, the deal is a striking return to its roots.

Although health care products now account for less than 40 percent of Bayer’s annual revenues, which were about $30.5 billion last year, the Schering acquisition could make health care the largest part of Bayer, with projected sales of $18 billion a year. Bayer’s biggest business now is producing polyurethane, polycarbonates and other manufacturing materials, which accounted for about $13 billion in sales last year.

“We have for some time believed that Schering was the ideal partner for moving into specialty pharmaceuticals,” Arthur Higgins, the chief executive of Bayer’s health care division, said in a telephone interview. “We have two excellent German companies coming together.”

Shares of Bayer rose 1.4 percent in Frankfurt on Thursday, after rumors of an offer swirled through the market. That suggested that investors would welcome the combination, which would create the world’s 12th largest pharmaceutical company, and a top 10 producer of specialty drugs. Schering is the world leader in oral contraceptives and also specializes in cancer drugs, while Bayer has recently focused its pharmaceutical research on cancer and cardiovascular drugs. In New York, where news of the deal began circulating in midafternoon, Schering’s American depository receipts rose nearly 7 percent, to close at $107.20. But Bayer’s ADR’s, while ending regular trading up 1.4 percent, to close at $41.69, fell nearly 3 percent in the after-hours market, as investors had time to digest the agreement’s details.

Germany’s fragmented drug industry is viewed as ripe for consolidation, having missed out on the wave of mergers that created global goliaths like GlaxoSmithKline, Sanofi-Aventis and Pfizer. Bayer, though Germany’s largest pharmaceutical company, ranks only 16th globally.

Analysts had predicted a rival bid for Schering after Merck’s unsolicited offer last week put the company into play. But few focused on Bayer, speculating instead about the Swiss drug giant, Novartis.