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Bayer set to win Schering as Merck pulls out

Written by: Staff
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FRANKFURT, Mar 24 (Reuters) Germany's Bayer looked set to buy drugmaker Schering for 16.3 billion euros (.5 billion) after rival suitor Merck KGaA pulled out of the race on Friday.

Merck, whose 77-euro-a-share offer for Schering was trumped by Bayer's bid of 86 euros late on Thursday, said a higher price was not justified and that it had decided to abandon the planned takeover of Berlin-based Schering.

Schering shares pared gains on the news but were still up 1.3 per cent at 86.05 euros by 1337 GMT (1907 IST). They earlier hit a record high of 89.45 euros on hopes Merck would come back with a higher offer.

If Bayer's bid goes through, it will create a group with sales of around 15 billion euros, returning to some prominence a German drugs industry that has lost its status as chemist to the world over the past two decades.

The deal will give Bayer access to Schering's contraceptive Yasmin, the world's top-selling oral birth-control drug, and multiple sclerosis treatment Betaseron, which Schering expects will touch 1 billion euros in annual sales.

The combined drugs business, called Bayer-Schering Pharmaceuticals, will have sales of 9 billion euros and be based in Berlin. The new grouping will have strengths in cardiac drugs, gynaecology and cancer.

Shares in drugs and chemicals group Bayer were 1.2 per cent higher, while Merck reached positive territory after it said it would pull out of the race. Analysts had earlier said it could offer up to 95 euros a share.

Merck said in a statement it would continue to assess all options to strengthen both its pharmaceuticals and chemicals units.

SCHERING PLEASED Schering said it would recommend Bayer's bid to its shareholders, and its chief executive, Hubertus Erlen, described Bayer's offer earlier on Friday as ''extremely attractive''.

''It is not possible for Schering to maintain its independence, given the Bayer offer,'' he told reporters in Berlin, where his company is based.

Bayer Chief Executive Werner Wenning told investors in a conference call he saw around 6,000 possible job reductions resulting from the union, with production sites to be rationalised and synergies in research and development.

Wenning said the company would use Schering's network in the United States to market Bayer's new drug hope, cancer treatment Nexavar.

Bayer said that despite the planned acquisition -- which would be the biggest in its 142-year history -- it was confident of retaining a ''solid'' investment grade rating.

It told investors it maintained a target for a long-term strategic single-A rating.

Bayer said the purchase price would be financed by 3 billion euros of existing cash resources and a new credit line provided by Credit Suisse and Citigroup.

The deal will be refinanced through a mix of equity, term debt, hybrid instruments and the proceeds from the sale of non-core assets including H.C. Starck and Wolff Walsrode, part of its MaterialScience plastics and chemicals unit.

Schering's biggest shareholder, Munich-based insurance group Allianz, kept its options open on Friday in the battle for Schering and declined to comment on how it would act.

However, it reiterated previous statements that it would act as ''a normal shareholder''. Allianz has said its industrial holdings are not strategic.

REUTERS SD PM1946

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