Bayer said this morning it will probably have to raise its offer price for fellow German drugmaker Schering AG. However, it aims to offset the increased cost of the transaction by suing rival company Merck KGaA for damages.

Merck failed to win Schering in a hostile takeover bid earlier this year.

With the deadline for its 86 euro per share offer expiring at midnight tonight – and Bayer still falling short of the stake it needs in Schering to allow the deal to go through – the company said it is preparing to launch a second offer to Schering’s shareholders.

The move has been forced by Merck’s steady build-up in the last weeks of a sizeable stake in Schering, making it difficult for Bayer to secure the 75% share holding required to let its deal go through. Bayer has reportedly been in negotiations with Merck, trying to get it to tender its shares, but to no avail.

Bayer filed suit for damages against Merck yesterday in New York, claiming that its ‘dubious tactics’, specifically withholding information on its intentions from the financial markets, are in violation of US law.

Bayer also revealed this morning it had been forced to pay up to 88 euros per share for stock in Schering, and now holds around 30% of the company, which means it has to make a new offer to all Schering’s stockholders to acquire the shares they still own. Merck held around 22% of Schering at the last count, not far off the 25% it would need to scupper the deal.

Bayer’s 16.4 billion euro ($20.1bn) bid for Schering trumped Merck’s earlier 14.9 billion euro offer, prompting Merck to publicly announce its intention to withdraw from the duel in March.

“The road has gotten rougher, but we’re not losing sight of the clear aim we set ourselves: our plan is to combine our pharmaceutical activities with those of Schering to form a world-class German pharmaceutical company,” said Bayer chairman Werner Wenning.

“We will do everything we can to clarify the situation as quickly as possible and prevent Merck’s tactics from harming the future development of the successful company Schering.”