* Bayer says outbidding Reckitt would not meet M&A criteria
* Reckitt offering $1.4 bln, above Bayer's $1.2 bln
* Reckitt in communication with Schiff, hopes for agreement
* Bayer says to continue looking for bolt-on acquisitions
* Schiff shares fall below $42 in pre-market trading
By Ludwig Burger and Ben Hirschler
FRANKFURT/LONDON, Nov 20 Bayer has
surrendered U.S. vitamin maker Schiff Nutrition to rival
bidder Reckitt Benckiser, in a blow to the German
drugmaker's quest to grow through smaller takeovers.
Bayer's decision to quit the fight on Tuesday vindicated
last week's move by Reckitt to offer $1.4 billion for Schiff,
topping an agreed $1.2 billion deal Bayer had struck.
Reckitt, the British consumer products group behind Cillit
Bang cleaner and Durex condoms which launched a tender offer for
Schiff on Nov. 16, said it now hoped to clinch an agreement with
"Our original tender offer still stands and we look forward
to reaching an agreement," a spokeswoman said. "We are in
communication with them (Schiff)."
Reckitt is offering $42 per Schiff share, a 24 percent
premium to the $34 Bayer agreed to pay on Oct. 30.
Schiff shares, which closed at $44.15 on Monday on hopes for
a bidding war, traded down to $41.76 in premarket trade.
Bayer, German biggest drugmaker, said its board decided not
to increase its offer because outbidding Reckitt would not make
"Entering a competitive bidding process ... would result in
a price outside Bayer's set financial criteria."
Bayer plans to continue a strategy of augmenting growth from
existing operations with strategic bolt-on acquisitions.
FIGHT FOR SHELF SPACE
For Bayer this is a setback as it aims to challenge U.S.
group Johnson & Johnson for the No.1 position in the
global over-the-counter (OTC) drugs market in the longer term.
Many pharmaceutical companies are keen to expand in
non-prescription drugs as a steadier, albeit less profitable,
counterweight to prescription medicines where there are risks
of, for example, clinical trial failures and patent expiries.
Reckitt's move showed the OTC drug industry also appeals to
household goods makers as they fight to command more shelf space
in drugstores and supermarkets.
The company is paying a high price to get into the $30
billion global market for vitamins and supplements for the first
time - its offer works out at 16.5 times the $85 million of
earnings before interest, tax, depreciation and amortisation
(EBITDA) Schiff expects to make in the year to May 2013.
That would be roughly double the multiple Carlyle paid for
supplements maker NBTY two years ago.
Reckitt, however, has a track record of achieving cost
savings and sales synergies. Past successful takeovers include
its acquisition of Boots's OTC drugs business, cough medicines
company Adams, and Durex condoms group SSL.
Reckitt has said it expected the deal to boost earnings
immediately on an adjusted basis.