SCHERING began the search yesterday for a “white knight” prepared to pay up to €17.5 billion (£12 billion) for the German fertility drug specialist after its board rejected a €15 billion hostile approach from its domestic rival Merck.

Sources familiar with the situation said that Schering was expecting approaches from a number of European pharmaceutical groups. The sources added that the company would fall willingly into the hands of a suitable bidder prepared to “table an offer starting in the €90s” per share.

Shares of Schering jumped 25 per cent on the Frankfurt stock exchange to €83.73 after Giuseppe Vita, head of the company’s supervisory board, said that he expected a counter-bid to emerge in the near future.

Asked if a white knight had already made itself known to the board, he said: “Not yet, but I think they will be knocking on our door very soon.”

Analysts suggested that the bidding would start at around €85 a share — €8 above the level at which Merck pitched a hostile approach over the weekend.

Potential candidates could include GlaxoSmithKline, seen as an opportunistic buyer of pharmaceutical assets, Novartis, which collaborates with Schering already on an experimental cancer treatment, and Johnson & Johnson, the American drugs giant.

Other possible candidates might include AstraZeneca, which is looking to bolster its near-term drugs pipeline with clever acquisitions, Abbott Laboratories, Bayer and Boehringer Ingelheim.

In a note to investors yesterday, Dresdner Kleinwort Wasserstein fuelled speculation by suggesting that private equity buyers might also cast an eye over the company. “We retain our view that Schering is an obvious candidate for a leveraged buyout and that, with cost savings, the present value of near-term cashflows exceed the current maket capitalisation of the company,” it said.

Dismissing Merck’s €15 billion cash offer as too low, Schering said in a statement to shareholders that the offer “significantly undervalued the group’s prospects as an independent specialised pharmaceuticals business.” Schering added that the offer was unsolicited and that talks were not continuing with Merck.

A deal between Merck, Europe’s oldest drugs maker, and Schering would create an all-German pharmaceuticals and chemicals business with sales of €11.2 billion.

Merck said that it expected to make annual cost savings of about €500 million by 2009. The company laid the groundwork for a raised offer, telling analysts that a deal would bolster earnings per share by

10 per cent in the current financial year, even without synergies. The bid will be financed by a combination of existing funds, debt and equity. The Merck family, which owns 73 per cent of the business, has pledged €1 billion of its own money to help to fund the deal. The offer, which requires the backing of 51 per cent of Schering’s shareholders, will expire in mid-May.

NAME GAME

Merck, the world’s oldest drugs company, based in Darmstadt, Germany, is often confused with its American namesake, fighting lawsuits over the painkiller Vioxx.

The two companies can trace their roots back to 1668, when Friedrich Jacon Merck acquired the Angel Pharmacy. They were split up after the First World War, when Washington effectively nationalised German interests in the United States. The New Jersey-based Merck holds the rights to the name in North America, operating elsewhere as Merck, Sharp and Dohme. The German business trades as Merck KGaA, except in the US, where it is known as EMD.