German pharmaceuticals giant Bayer last night finally confirmed the market rumors: the company aims to snap Berlin-based drugs maker Schering away from chemical firm and bidding rival Merck. If successful, the €16.3 billion deal would be the largest takeover in the history of Bayer -- which created aspirin in 19th century -- and would attempt to create a German global player in the pharma sector.

Unlike Merck's two-week old hostile bid, which the company officially gave up on Friday, Schering has welcomed the Bayer takeover bid. That's unsurprising since Bayer has not only offered more than was laid on the table by Merck's bid, but it has also has agreed to run the combined company from Berlin, instead of Bayer's headquarters in the small town of Leverkusen near Cologne. Schering, which is one of the world's leading manufacturers of the birth control pill, is the last big company headquartered in Berlin and both the firm and the city's politicians worried about the effects on the local economy in the event of a takeover. Some 7,500 jobs were threatened under the Merck proposal, but Bayer said as many as 6000 positions could eventually go. Schering head Hubertus Erlen is thought to have preferred to remain independent, but once confronted with the hostile Merck bid, the search for a white knight was on. Amid increasing global competition, many German companies are feeling the pressure to grow through mergers and acquisitions in order to avoid becoming takeover targets themselves. "This merger is the best solution to increase Germany's profile as a focus for pharma," Bayer CEO Werner Wenning said after announcing the company's offer. A combined Bayer-Schering would top the annual sales of Germany current leading pharmaceuticals maker, Boehringer Ingelheim, with turnover of more than €9 billion.

But does size really count? Many analysts remain skeptical of the proposed deal. "Schering doesn't really fit in Bayer's portfolio that well," Bankhaus Merck Finck & Co. pharma analyst Carsten Kunold told the Berliner Zeitung on Thursday. "Bayer actually wants to specialize in specific products and with Schering the concern would clearly expand its offerings." Bayer said it expects some €700 million in annual savings from 2009 due to synergies, but pharma sector experts put that figure in doubt.

Bayer has said it will make its offer contingent on getting the backing of 75 percent of Schering's shareholders. The deal could then be completed by June, since it is unlikely to run into regulatory opposition.