Germany's Merck KGaA has launched a takeover bid for compatriot drug company Schering AG. The deal, which would be in cash, values Schering at $16.2 billion and would create a company with combined sales of more than $13.9 billion, based on 2005 results.
Schering's executive team has rejected the takeover bid, saying it significantly undervalues the company. At roughly $96 per share, the offer is a third above Schering's average share price over the past three months and 15% above the price on the day before the bid was announced. It is also 10% higher than the per-share breakup value that securities analysts at Dresdner Kleinwort Benson calculated in an advisory note earlier this month.
According to Merck's chairman, Michael Roemer, the deal builds on the complementary strengths of both companies. "We believe that by combining our businesses we can create a more competitive global platform for further sustainable and profitable growth," he told a hastily assembled press conference on Monday morning.
The two companies' combined ethical pharmaceuticals businesses, for example, would have shown 2005 sales of $7.0 billion, buttressed by a combined R&D budget of $1.6 billion, with 30 projects in clinical development.
Although much of the press conference examined the impact on the two companies' pharmaceutical operations, Roemer confirmed that chemicals would remain a core business in the combined firm. "We will remain a chemicals and pharmaceuticals business," he said at the conference. "This is our strategy and what we will stick to."
At the press conference, Roemer and his executive team said it was too early to say how Merck would obtain a target of $622 million in annual cost savings, 8% of the combined company's cost base. "We don't want to reduce employment, we want to reduce structures' that's where we expect synergies," Roemer said. "It is important to first develop the new structure, and see what you need, then decide upon how many people you will need, where."
Roemer also emphasized that the proposed deal had no connection with the November firing of Merck CEO Bernhard Scheuble. "This is a new project, unconnected with that." He added that the Merck family, which is Merck's majority shareholder, intends to invest $1.2 billion in the company to support the cash bid.