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Bayer Scraps Schiff Nutrition Deal

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Bayer (BAYRY - Free Report) recently announced that it will not go ahead with its proposed acquisition of nutritional supplement company Schiff Nutrition International, Inc. .  Bayer had announced in October 2012 that it has inked a deal to buy Schiff Nutrition for $1.2 billion or $34.00 per share in cash. The agreement permitted Schiff Nutrition to review and accept an unsolicited offer within 30 days of inking the deal with Bayer.

Schiff Nutrition subsequently accepted the higher offer of the UK based consumer goods company Reckitt Benckiser Group plc . The consumer goods company inked a deal, earlier in the month, to buy Schiff Nutrition for $1.4 billion or $42.00 per share.

Management at Bayer stated that it still believes that had its proposed acquisition of Schiff Nutrition gone through it would have been a significant addition to the German company’s Consumer Care business. However, Bayer decided not to compromise on its offer and refused to enter into a bidding war with the UK based company as it was likely to result in an offer price above Bayer’s acceptable range.

Following the termination of the deal, Bayer received $22 million from Schiff Nutrition. Even though Bayer’s deal with Schiff Nutrition fell through, the former announced that it will not alter its policy of growth by acquisition.

We note that Bayer has been quite active on the acquisition front lately. In August 2012, the CropScience unit of Bayer acquired AgraQuest, Inc, formerly a global supplier of innovative biological pest management solutions. The acquisition has boosted Bayer’s fruits and vegetables business while building a strong technology platform based on "green" products.

Moreover, the decision of the HealthCare unit of Bayer to acquire Teva Pharmaceutical Industries Ltd. ‘s (TEVA - Free Report) animal health unit in the US is an encouraging move. The inclusion of Teva’s US animal health unit will not only add reproductive hormones to Bayer’s product portfolio, but also provide multiple anti-infective solutions for treating infections in livestock to Bayer‘s food animal unit. Following the completion of the deal in 2013, Bayer’s companion animal unit will boast of dermatological, pet wellness and nutraceutical offerings.

Our Recommendation

We have an Outperform recommendation on Bayer. The stock carries a Zacks #2 Rank (Buy rating) in the short run.

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