German drugs firm Merck has pulled out of the bidding for Schering, leaving the way clear for Bayer to complete a 16.3bn euro ($19.5bn; £11.2bn) deal.
Bayer says the deal will create an industry heavyweight
Schering recommended Bayer's cash offer of 86 euros a share to its investors after snubbing Merck's lower offer.
Merck said it was not prepared to put in a higher bid without the support of Schering's board of directors.
The deal would "reassert the importance of Germany as a pharmaceutical industry base", Bayer said.
Bayer emerged as a "white knight" bidder on Thursday after Schering had rejected Merck's hostile approach.
Following Bayer's intervention, Merck said it had "decided that there is no reason to raise its offer for Schering and has opted not to pursue its bid for the company".
Analysts have been predicting further consolidation in the European drugs sector.
Pharmaceutical firms face spiralling costs for developing new drugs and lower-cost generic drugs firms are increasingly taking market share.
Bayer said it expected the transaction, which must be approved by Schering shareholders, to be completed by the middle of this year.
At close Bayer's shares were up 1.93% to 35.41 euros on Merck's withdrawal while Schering rose 1.33% to 86.42 euros.