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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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In the Pipeline: Don't miss Derek Lowe's excellent commentary on drug discovery and the pharma industry in general at In the Pipeline

In the Pipeline

« Crystals of Doubt | Main | Explosion News »

March 24, 2006

Can You Say "Uebernahmeangebot"?

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Posted by Derek

Merck KGaA made a bid for Schering AG a little while back, which is one of those pharma news items I never got around to talking about here. I have to put those German initials in there, because (just to confuse people who don't follow the pharmaceutical industry) those two companies have no connection with the US Merck of Vioxx fame or with Schering-Plough. Well, no connection since the First World War, anyway, when the US seized their assets here and split them off into new companies. A lucrative sideline would consist of being paid a dollar every time someone mixes these up.

At any rate, Schering AG sneered at the offer, saying that Merck valued their company far too cheaply. My usual response to things like this is to wonder, then, how such a bargain could be just sitting there on the open market without anyone realizing it, but hey, I'm not an M&A guru. (And you can make an argument that the German stock market doesn't do as good a job at valuing companies as the US ones, because German firms have traditionally not raised as much money through sale of stock. German stocks are a different world - note that the "German NASDAQ", the Neue Markt was closed in 2002 after only five years of trading. Germany basically experienced the dot-com boom through an entire stock exchange of its own).

Well, things were quiet on the merger news for a little while, until Bayer popped up last night with a higher bid for Schering AG. They seem to have thought that As of this morning, the press is reporting that Merck has pulled out of any possible bidding war, which no doubt leaves them wondering just what to do now, and leaves Bayer and Schering's people all wondering what just happened. Are other small-to-medium European pharma outfits (Novo Nordisk, Akzo Nobel, Solvay, Altana and so on) ready for some action of their own?

Comments (7) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. Morten on March 24, 2006 5:21 PM writes...

What does this sentence mean: "Germany basically experienced the dot-com boom with through entire stock exchange of its own". Maybe I'm just tired but it makes no sense to me at all...

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2. boiledonions on March 24, 2006 5:58 PM writes...

Your blog entry translated from German (courtesy of Google Translate).

CAN You Say "assumption offer"?
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Posted by Derek

Merck KGaA larva A bid for Schering AG A little while bake, which is one OF those pharma news items I more never got around tons talking about here. I have ton of PUT those German of initial into there, because (just ton confuse people who don't follow the pharmaceutical industry) those two companies have NO connection with the US Merck OF Vioxx fame or with Schering Plough. Wave, NO connection since the roofridge World was, anyway, the US when seized their assets here and split them off into new companies. A lucrative sideline would consist OF being paid A dollar every time someone mixes thesis UP.

RK any guesses, Schering AG sneered RK the more offer, saying that Merck valued their company far too cheaply. My usual response tons things like this is tons more wonder, then, how visit A bargain could just sitting there on the open market without anyone realizing it, but hey, I'm emergency at M&A guru. (and you CAN make at argument that the German stick market doesn't DO as good A job RK valuing companies as the US of ones, because German firms have traditionally emergency raised as much money through sale OF stick. German of stick of acres A different world - note that the "German NASDAQ", the new market which closed into 2002 after only five years OF trading. Germany basically experienced the DOT com boom with through entire stick exchange OF its own).

Wave, things were quiet on the more merger news for A little while, until Bavarian popped UP read night with A more higher bid for Schering AG They seem ton have thought that As OF this morning, the press is reporting that Merck has pulled OF any possible bidding was out, which NO doubt leaves them wondering just what tons of DO now, and leaves Bavarian and Schering's people all wondering what just happened. Acres OTHER small ton medium European pharma outfits (Novo Nordisk, Akzo Nobel, Solvay, Altana and so on) ready for some action OF their own?

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3. Martin on March 24, 2006 8:06 PM writes...

Derek,

The "bargain" can be sitting in the bargain becuase the market price reflects the price to acquire a small bundle of shares, whereas a takeover price reflects the price to acquire more than 50% of the stock to gain control and more than 80% to also get tax consolidation (if that is a benefit). Thus, there is value to crossing the 50% threshold, but everyone between the small amount of shares oyu can buy in the market up to the 50% threshold will demand to be paid a premium for the control that the acquirer can achieve.

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4. Derek Lowe on March 24, 2006 9:16 PM writes...

Morten, it's not you. That line made no sense, and I've fixed it. What I was trying to say is that here we had NASDAQ, which zipped up (and back down) durin the boom, but is still with us. Germany set up their own NASDAQ-ish exchange when times were good, and pulled the plug on it when things got rough.

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5. Derek Lowe on March 24, 2006 9:21 PM writes...

That's a good point, Martin. You do have to sweeten the pot, I'm sure, to get the large shareholders to tender their holdings to you. It still strikes me as odd, though, when bidding wars erupt during a takeover and suddenly a company seems to be worth much more than anyone dreamed it might be. Of course, there's a general "auction premium" in these situations anyway, I think.

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6. Petros on March 26, 2006 6:49 AM writes...

This offer is intriguing since the German market has traditionally resisted hostile takeovers although the mobile phone compnay Vodafone did managed to acquire Mannesman via hostile bid.

But the main (sole?) rationale for mergers in the pharma industry is to produce economies of scale, which means cutting costs. And in Germany it is very difficult to make staff redundant. This leaves the employees of the two compnaies who work in their overseas subsidiaries more precariously placed!

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7. DRogers on March 27, 2006 1:01 PM writes...

Petros,

A counter-argument to your theory is the fact that the overhead for the employees of overseas subsidiaries is often much less than that of "continental" employees, so saving money by firing the offshore folks is a costly way to achieve economies of scale, and may hurt overall productivity levels.

An example of this may be seen in the current state of the Sanofi-Aventis merger, which I once thought would put the American Bridgewater site at risk, but it appears to be doing rather nicely as of yet. (Maybe if they had a few dramatic Phase III burnouts things would be different in New Jersey...)

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