Merck KGaA has made a formal, 77 euro-per-share hostile takeover bid for fellow German drugmaker Schering AG, but was swiftly rebuffed by Schering's management which said the offer significantly undervalues its business.

The unsolicited offer, which is valued at around $17.4 billion, was made by Merck over the weekend, according to Schering, which said it fails to recognise its prospects as an independent pharmaceutical company. No negotiations are ongoing between the companies, Schering added.

“Irrespective of [Schering] management board’s recommendation, the decision to accept our offer lies with the shareholders. We are confident that they will consider this offer, which represents full and immediate value, as attractive,” said Merck’s chairman Michael Roemer.

Merck said the move was designed to create a specialised pharmaceutical and chemicals company with the scale and muscle to compete on the global stage. The combined entity would have pro forma sales of 11.2 billion euros, with pharma sales of 5.6 billion euros and an R&D budget of 1.3 billion euros, primarily in specialist areas such as oncology and hormonal therapies. Cost-saving could be in the region of 500 million euros a year through to 2009.

Merck said its 77 euros-a-share offer is a 35% premium over Schering’s three-month average share price. Schering’s shares have been rising steadily, fuelled last week on takeover speculation that linked the company to Novartis, and news of Merck’s bid drove the stock above 81 euros this morning.

The Merck family, which owns 73% of the company, is retaining its stake and will make a 1 billion-euro equity investment in the acquisition.

Merck brings its fast-growing cancer drug Erbitux (cetuximab) to the table, while Schering would supply its hormonal therapy expertise, and particularly the top-selling Yasmin brand of oral contraceptives, as well as Betaferon (interferon beta-1b) for multiple sclerosis. Merck also has a Parkinson’s drug, sarizotan, in Phase III trials that would lie well alongside Betaferon as the beginnings of a central nervous system franchise.

News of Merck’s bid came just after Schering issued a statement cutting its peak sales estimates for its Angeliq hormone replacement therapy by 100 million euros to 150 million euros.

Merck said it hoped to use the success of its fast-growing liquid crystals business to help bolster its pharmaceuticals pipeline.

“This is an ideal combination for both companies,” said Roemer. “It provides both companies with the unique opportunity to take a quantum leap and become more competitive and continue to thrive in the consolidating global pharmaceuticals industry.”

- Merck also announced that Dr Karl-Ludwig Kley has been named deputy chairman of its executive board and general partner of E Merck OHG, effective September 1, 2006.