Reckitt Benckiser Group Plc has trumped Bayer AG's agreed deal to buy Schiff Nutrition International Inc with a higher offer of $1.4 billion for the US vitamin maker.
The bid, which tops Bayer's $1.2 billion price, opens up a potential bidding war for Schiff, whose portfolio of vitamins and nutritional supplements including MegaRed for heart care and Move Free for joints is appealing to companies seeking stable sources of growth.
Reckitt, the British consumer and healthcare company, said late on Thursday it would offer $42 for each Schiff share, a 23.5 percent premium over the $34 per share that Bayer, Germany's biggest drugmaker, agreed to pay on Oct. 30.
Shares of Schiff Nutrition surged nearly 30 percent to $44 in after-hours trading on the New York Stock Exchange, above Reckitt's offer and indicating some investors expect the bidding to go higher still.
Reckitt's offer values Schiff at about 3.6 times its forecast 2013 annual sales, which is around the top end of deal multiples in the non-prescription drugs industry.
But it would get Reckitt into the $30 billion global market for vitamins and supplements for the first time, complementing its existing strength in other areas of consumer health.
When this offer was made by Bayer - which was a bilateral agreement and not a public auction process - we knew that this was an area we would be very interested in, Reckitt's Chief Executive Officer Rakesh Kapoor told Reuters.
That's why we started to work and look at it once again to see whether this would be attractive to our shareholders. Based on our due diligence, we believe it is and that's why we've come up with a strong offer.
Analyst Andrew Wood at brokerage Bernstein said the deal made good strategic sense for Reckitt.
This is particularly true given (Reckitt's) ... excellent M&A track record and its ability to quickly extract big synergies from acquired companies, he said.
Reckitt said it expected the deal to boost earnings immediately on an adjusted basis and Bernstein's Wood predicted an uplift of about 1 to 2 percent in 2013 earnings per share.
A Bayer spokesman declined to comment and representatives for Schiff could not be immediately reached for comment.
While Bayer may bide its time before reacting to Reckitt's move, its management will be under pressure to salvage a deal that was well received by investors.
A bidding war cannot be ruled out. Bayer probably has to match the Reckitt offer. This would result in an acquisition price which might get unattractive for Bayer, DZ Bank analyst Peter Spengler said in a research note.
Bayer shares were 0.3 percent higher by 0815 GMT, while Reckitt dipped 0.7 percent.
Under the terms of its deal with Bayer, Schiff is allowed to entertain superior offers made in writing before Nov. 28. If it decides to go with another offer, it would have to pay a relatively modest $22 million breakup fee to Bayer.
With Schiff now in play, analysts said the situation could also attract interest from other parties - in particular Johnson & Johnson, the only other leading consumer health player lacking a presence in vitamins and supplements.
Schiff Chairman Eric Weider and private equity firm TPG Capital controlled 85 percent of the company's voting power, as of the end of October.
For Bayer, the planned acquisition of Schiff represents part of a strategy to expand into steadier, albeit less profitable, areas as a counterweight to prescription medicines, where there are high risks of clinical trial failures and patent expiries.
Reckitt, meanwhile, is keen to build up its healthcare business, which already includes painkillers, anti-acne creams and condoms. It also makes a range of household and personal care products and has brands including Durex and Cillit Bang.
Morgan Stanley & Co is acting as financial adviser to Reckitt, with Paul, Weiss, Rifkind, Wharton & Garrison LLP serving as legal adviser.