Hoffmann-La Roche Raises Sterling Bid

NEW YORK — F. Hoffmann-La Roche & Co. determinedly raised its takeover bid for Sterling Drug Inc. again Thursday, offering $81 a share, or about $4.65 billion, for the marketer of Bayer aspirin and Phillip’s Milk of Magnesia.

The new bid, the third by the giant Swiss manufacturer of Valium and other drugs, followed a recent buildup of anti-takeover measures by Sterling.

It was the second time Hoffmann-La Roche sweetened its offer in three days. The company raised its initial bid of $72 a share on Monday after Sterling’s board in New York rejected the first offer as “grossly inadequate” and said it was exploring alternatives that could include an acquisition by a third party.

Sterling remained silent on the latest offer.

Its shares jumped higher in response to the new bid but remained below Hoffmann-La Roche’s offer, indicating a waning of speculative buying. Sterling traded at $78.875 a share, up $2.50 from Wednesday’s close on the New York Stock Exchange.

Many analysts already had expected the bidding to finish in the range of $80 to $90 a share, which was their estimated value for Sterling based on its cash flow.

By pushing its offer into that range, Hoffmann-La Roche could head off competing suitors who might have been willing to enter the fray at a lower price.

Ronald Nordmann, senior drug industry analyst for Paine Webber Group, said that despite Sterling’s disclosure that it was negotiating a possible third-party acquisition, there were no indications the company had found a “white knight” yet.

He said he knew of no major brokerage firm other than Morgan Stanley & Co., Sterling’s investment banker, that had Sterling on its restricted list.

Firms generally place a stock on their restricted list if they are in possession of confidential information that could affect its price, such as involvement in a buyout offer.

Other analysts observed that by pushing its bid to $81, Hoffmann-La Roche was using several factors to its favor to pressure Sterling to negotiate and woo Sterling shareholders.

In a Securities and Exchange Commission filing earlier this week, Sterling disclosed that Morgan Stanley would be paid $10.6 million if Sterling was sold for $72 a share, but the fee would be $15.2 million if the price was as much as $80 a share.

Sterling would pay Morgan Stanley an additional $1.4 million for every $1 a share that the purchase price rose over $80. But if the company remained independent, Morgan Stanley would get no more than $10 million.

“What that does is put a little bit more pressure on the prospective white knight and also adds a touch more incentive for Sterling’s investment banker to get a deal going here,” said Nordmann. “It’s unlikely Hoffmann-La Roche will raise its bid again if no one shows up to bid against them.”

The Hoffman-La Roche offer has been extended to Feb. 3 from a previous closing date of Feb. 2, and is contingent on a majority of shares being tendered.

Sterling has been building up its defenses against Hoffman-La Roche. Earlier this week, it said it reached an agreement with a major New York bank to arrange for a $2-billion line of credit to finance its anti-takeover strategy. It also has been generating support among U.S. congressmen from New York.