Bayer to buy Merck's 21.8% stake in Schering at €89, Bayer drops lawsuit

By E. Janene Geiss

Philadelphia, June 14 - Bayer AG said Wednesday that it has agreed to buy Merck KGaA's 21.8% stake in Schering AG at a price of €89 per share, a level that will now be paid to all existing Schering shareholders instead of the €88 previously on offer and the original €86.

Bayer also said it will drop a lawsuit against Merck.

Bayer and Merck also agreed during their talks to look into further possible opportunities for cooperation between the two companies.

"We're very pleased about Merck's decision, because a lengthy competitive bidding process would have greatly affected Schering's future," said Bayer management board chairman Werner Wenning, in a news release.

"All three companies concerned will benefit from this step. 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. Today we have taken a major step toward creating a world-class German pharmaceutical company."

Earlier in the day Bayer had reiterated its commitment to wholly acquire Schering AG and said it was preparing to launch a "mandatory offer" if the current takeover offer proves unsuccessful.

Bayer also filed suit against Merck for damages in New York because of what Bayer called Merck's failure to comply with U.S. capital markets law.

The mandatory offer was proposed because Bayer had been assuming Merck would not tender the shares it now owns under the current takeover offer.

Bayer's lawsuit against Merck claimed that company had failed to disclose its strategic intentions in violation of U.S. law, thus leaving investors and the parties to the takeover uncertain as to that company's objectives.

On March 23, Bayer announced its friendly takeover offer, which has the support of both the management board and the supervisory board of Schering and exceeds Merck's hostile takeover bid by 12%.

A few hours after Bayer's announcement, Merck declared its withdrawal from the bidding, both publicly and also in a letter to the Bayer management board chairman, saying one of its reasons for doing so was that the price of €86 per share could not be justified.

But then, toward the end of the acceptance period for Bayer's offer, Bayer said 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.

Thus Merck concealed from the public its true intentions as an additional bidder, Bayer claimed.

By first signaling a withdrawal and then reviving its bid without proper explanation violates both the letter and the spirit of capital market law, Bayer said.

Bayer, through its wholly owned subsidiary Dritte BV GmbH, initially offered to pay €86 per share in cash under its takeover offer for all bearer shares of Schering, including those shares represented by American Depositary Shares.

However, since June 12, Dritte acquired an additional 25,179,799 shares in transactions at prices ranging from €86 to €88 per share, Bayer said.

Under applicable German law, the offer price payable for all shares, including shares represented by American Depositary Shares, acquired in the offer was automatically increased to €88.

As of Wednesday, Dritte had acquired 70,501,727 shares (36.34% of the nominal capital and voting rights of Schering) in open market or privately negotiated transactions, officials said.

Schering is a Berlin research-based pharmaceutical company.

Bayer, based in Leverkusen, Germany, is a research-based company focused on development of health care, nutrition and innovative materials.

Merck is a pharmaceutical company located in Darmstadt, Germany.

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