Bayer has ridden to the rescue of the Schering management board, laying a 16.3 billion euro ($19.5bn) offer for the company on the table that tops a rival 14.6 billion euro bid from Merck KGaA.

Schering’s board had already rejected Merck’s offer saying it undervalued the firm, but gave its whole-hearted support to Bayer’s bid, saying the combination of the two businesses would create a ‘leading specialised pharmaceutical company’.

“Both businesses are complementary and follow the same strategy,” said Schering chairman Dr Hubertus Erlen, referring to their focus on specialty care medicines. “Together they will be even more competitive internationally.”

Analysts said the Bayer offer was a strong one and suggested it would be hard for Merck to top it, although investors are now waiting to see if another suitor throws its hat into the ring.

The new entity would have its headquarters in Leverkusen and estimated annual revenues of nearly 15 billion euros, with the pharmaceutical operations combined into a new division - Bayer Schering Pharmaceuticals, which would be based in Berlin and have sales of around 9 billion euros. It would rank as the 12th-largest drugmaker in the world.

And, while chemicals was formerly Bayer’s largest business, the acquisition would elevate healthcare into pole position, providing 70% of group sales.

Savings of around 700 million euros a year could be achieved, from the third year after the transaction took place, Bayer said in a statement. Job cuts could reach a level of 6,000 over the next few years, roughly 10% of the combined workforce.

In order to help finance the acquisition, Bayer has said it will sell two subsidiaries of its MaterialScience unit - HC Starck and Wolff Walsrode - but no other divestments are planned, said Bayer CEO Werner Wenning.

The acquisition would be the largest ever undertaken by Bayer, which has been restructuring its business by spinning of certain chemicals interests into an independent company, Lanxess, and re-building the healthcare business in the wake of the damaging withdrawal of cholesterol-lowering drug Baycol/Lipobay (cerivastatin) in 2001.

Schering brings a market-leading hormonal therapies business, including the blockbuster Yasmin oral contraceptive franchise, cancer drugs and Betaseron (interferon beta-1b) for multiple sclerosis. Bayer has latterly been concentrating particularly on cancer and cardiovascular drugs. It has potential blockbusters on its hands with Nexavar (sorafenib) for kidney cancer and the antithrombotic Factor Xa inhibitor.

The two companies boast a combined pipeline with four products in registration, 19 in Phase III trials, 14 in Phase II and 17 in Phase I.

“The combined pipeline of the two companies holds the potential to ensure sustained innovative strength in the mid to long term,” said Wenning, noting that the merger would also make the new firm more attractive as a partner for in-licensing products.