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Pharmaceutical industry

Merck's Hostile Bid for Schering Sparks Industry Merge Frenzy

Strategic Insights

— 2 min read

Merck's €14.9 billion cash bid for Schering marks a significant move to create a stronger pharmaceutical giant. The bid, equivalent to £10 billion, represents a 15% premium to Schering's closing price last week. Merck's offer is expected to be received by Schering today, but the latter has expressed skepticism, stating that the bid "significantly undervalues" its prospects as an independent company. The deal would merge two companies of similar size, with combined annual sales of over €11 billion and net profit of €1.3 billion last year.

Key Takeaways:

  • Merck's €14.9 billion bid for Schering represents a 15% premium to the latter's closing price last week.
  • Schering's valuation is lower due to a weak pipeline of drugs under development.
  • The combined company would have the global lead in the market for birth control pills and offer a range of drugs to treat multiple sclerosis and cancer.
  • The deal would be the first in Germany's pharmaceutical sector since Hoechst merged with France's Rhone Poulenc in 1998 to create Aventis.
  • Mid-sized drug companies have been merging to tap economies of scale amid the rising cost of drug development.
  • Schering notched up €619m of net profit on turnover of €5.3bn for 2005, while Merck earned €672.7m on €5.87bn of sales last year.
  • The combined company would be the second-largest drugmaker in Germany behind Bayer, which manufactures aspirin.
  • Unsolicited bids like Merck's are less common in Germany than in Britain, which has fewer barriers to mergers and acquisitions.

Statistics:

  • €14.9 billion: Merck's cash bid for Schering
  • €10 billion: Equivalent USD value of the bid
  • 15%: Premium to Schering's closing price last week
  • €11 billion: Combined annual sales of Merck and Schering
  • €1.3 billion: Combined net profit of Merck and Schering last year
  • €5.3 billion: Schering's turnover for 2005
  • €619m: Schering's net profit for 2005
  • €5.87 billion: Merck's sales last year
  • €672.7m: Merck's net profit last year
  • €16 billion: Merck's market value at last week's close
  • €13 billion: Schering's market value at last week's close
  • 1998: Year in which Hoechst merged with France's Rhone Poulenc to create Aventis

Sources:

  • "Merck set to make hostile bid for Schering" by FT
  • "Schering rejects Merck's €14.9bn bid" by Bloomberg
  • "Merck bids €14.9bn for Schering in hostile takeover" by Reuters
  • "Schering's 2005 annual report" by Schering AG
  • "Merck's 2005 annual report" by Merck KGaA

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