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Last Updated: Monday, 13 March 2006, 17:25 GMT
Hostile Merck bid boosts Schering
Merck worker scooping pills
Pricing pressures are forcing companies to try and cut costs
Shares in German drug group Schering have surged almost 30% after rival Merck launched a hostile 14.6bn euro ($17bn; 11bn) bid for the firm.

The takeover offer values Schering shares at 77 euros, a 15% premium on its closing price on Friday.

Schering said it was not in talks with Merck and added that it thought the bid significantly undervalued the company.

Analysts said a merger made sense as the two German firms are not big enough on their own to take on larger rivals.

'Below-average'

Together they would have annual sales of roughly 11bn euros, moving them closer to companies such as aspirin-maker Bayer.

It would also allowing the firms to cut production and development costs.

Shares in contraceptive pill-maker Schering surged on the Frankfurt market after the news, closing 27% higher at 84.59 euros.

Schering's headquarters in Berlin
No negotiations are ongoing with Merck
Schering

However, Merck dropped 4.5% and some analysts questioned whether it was offering too much for Schering.

"I can't understand why one would pay so much for a company that has below-average potential growth," said Martin Possienke, an analyst at Equinet.

Mr Possienke added that Schering did not have a lot of new, blockbuster drugs due to come to market, something that could hamper future earnings.

One of the main drivers behind the move would be cost cutting, and Merck said it expects to save as much as 500m euros a year from 2009.

'Unsolicited'

Merck, founded in 1668 and majority owned by the Merck family, employs some 29,000 people worldwide.

The company has a large chemicals business and is best-known for its cancer, heart disease and diabetes treatments, as well as its production of liquid crystals.

Schering was founded in 1851 and has almost 25,000 employees. It is the world's largest maker of contraceptive pills, and also produces treatments for multiple sclerosis, cancer and infertility.

The Merck family is expected to put up about 1bn euros to help finance the takeover and is not expected to reduce its stake in the firm.

"This is an ideal combination for both companies," said Michael Roemer, Merck's chairman.

"It provides both companies with the unique opportunity to take a quantum leap and become more competitive."

Schering countered that while it had been approached, the move was "unsolicited and that no negotiations are ongoing with Merck".



SEE ALSO:
Merck shares hit as boss departs
23 Nov 05 |  Business
Guidant sues J&J over $25bn deal
07 Nov 05 |  Business
Bayer drug deal gets green light
19 Nov 04 |  Business


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