Bayer to Buy Schering, Sell H.C. Starck and Wolff Walsrode.

Navigation: Main page

Author: Scott, Alex

Bayer says it has reached agreement to purchase Schering (Berlin) for €16.3 billion ($19.5 billion), equivalent to €86/share. Bayer says it will partly finance the deal by selling materials business unit H.C. Starck (Goslar, Germany) and cellulosics unit Wolff Walsrode (Walsrode, Germany). Bayer says it expects to complete the acquisition of Schering by the end of June.

Bayer's offer is 12% higher than a recent €14.6 billion bid for Schering by fellow German pharma and chemicals group Merck KGaA (CW, March 22, p. 37). Schering's management board had rejected the Merck bid on the grounds that it was not high enough. Merck said last week that it would not be increasing its offer.

The deal would lift Bayer HealthCare from its position as the 17th-largest pharma company, to 12th, with sales of more than €9 billion/year, of which Schering would contribute €5.3 billion/year. The deal would enable Bayer HealthCare to increase its Ebitda margin to 25% by 2009, up from 19% at present, the company says. The new pharma business would be named Bayer-Schering and would be headquartered in Berlin. The acquisition would lift Bayer's sales from life science activities up from 60%, to 70% the company says.

Bayer says that it will initially secure a €3-billion bridge loan from Credit Suisse and Citigroup to finance the deal, and at a later date will refinance the deal through bank loans, debt capital and other financial instruments, as well as proceeds from the sale of Starck and Wolf Walsrode. The company says both businesses are "very profitable," but "no longer fit" its core business focus. Bayer has indicated that there are prospects for a "rapid sale" of these businesses.

Bayer predicts that synergies from the Schering acquisition would bring €700 million in annualized savings after three years, after one-time restructuring costs of about €1 billion. The company indicated that it might cut about 10% of its post-acquisition Bayer Healthcare workforce of 60,000 as part of its measures to cut costs. "We are convinced that merging the two companies will create a health care heavyweight of international standing with a strong market position based on an innovative product portfolio and a well-stocked pipeline," says Bayer chairman Werner Wenning. Both Schering and Bayer are complementary, and follow the same strategy, according to Hubertus Erlen, chairman of Schering.

PHOTO (COLOR): Wenning: Creating a pharma heavyweight.

~~~~~~~~

By Alex Scott