SEC Division of Corporation Finance no-action letter: Bayer AG

Securities Exchange Act of 1934
Rule 14d-11; Rule 14d-11(f)
Rule 14d-10(a)(2)
Rule 14e-1(b)
No Action and Exemptive Letter: Bayer AG
Response of the Office of Mergers and Acquisitions, Division of Corporation Finance UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-0303 DIVISION OF CORPORATION FINANCE September 26, 2006 Via Facsimile 011 49 69 97103-199 and U.S. Mail Ward A. Greenberg Cleary Gottlieb Steen & Hamilton LLP Main Tower Neue Mainzer Strasse 52 60311 Frankfurt am Main, Germany Re: Offer by Bayer Aktiengesellschaft and Dritte BV GmbH (together, the “Bayer Entities”) for Schering Aktiengesellschaft (“Schering”) Dear Mr. Greenberg:
We are responding to your letter dated September 26, 2006 to Brian V. Breheny and Christina Chalk, as supplemented by conversations with the staff of the Division of Corporation Finance, with regard to your request for exemptive and no-action relief. Our response is attached to the enclosed photocopy of your letter. Each defined term in this letter has the same meaning as in your September 26, 2006 correspondence, unless we indicate otherwise. On the basis of the representations made and the facts presented in your September 26, 2006 letter, the United States Securities and Exchange Commission (the “Commission”) hereby grants exemptions from:

Ward A. Greenberg, Esq.
September 26, 2006

• Rule 14d-11 under the Securities Exchange Act of 1934 (“Exchange Act”). The exemption
  from Rule 14d-11 permits the Bayer Entities to include a Subsequent Offering Period from the 21st day following the Registration Announcement for so long as required to be extended under German law.
• Rule 14d-11(f) under the Exchange Act. The exemption from Rule 14d-11(f) permits the
  Bayer Entities to offer consideration during the Subsequent Offering Period which differs from that offered during the Initial Offer Period solely by virtue of the Statutory Interest accrued and any reductions as a result of Guaranteed Dividend payments made, as required under German law and described in your letter.
• Rule 14d-10(a)(2) under the Exchange Act. The exemption from Rule 14d-10(a)(2) permits
  the Bayer Entities to pay consideration which will fluctuate during the Initial Offer Period and the Subsequent Offering Period because of the Statutory Interest accrued thereon and any reductions thereof as a result of Guaranteed Dividend payments made, as required by German law and described in your letter. Based on the representations made in your September 26, 2006 letter, the staff of the Division of Corporation Finance will not recommend enforcement action pursuant to Rule 14e-1(b) under the Exchange Act if the Bayer Entities pay consideration which will fluctuate during the Initial Offer Period and the Subsequent Offering Period because of the Statutory Interest accrued thereon and any reductions thereof as a result of Guaranteed Dividend payments made, as required by German law and described in your letter. The foregoing exemptions and no-action positions are based solely on the representations and the facts presented in your letter, as supplemented by telephone conversations with the Commission staff. The relief is strictly limited to the application of the rules listed above to this transaction. You should discontinue this transaction pending further consultations with the staff if any of the representations set forth in your letter change. We also direct your attention to the anti-fraud and anti-manipulation provisions of the federal securities laws, including Section 10(b) and 14(e) of the Exchange Act, and Rule 10b-5 thereunder. The participants in this transaction must comply with these and any other applicable

Ward A. Greenberg, Esq.
September 26, 2006 provisions of the federal securities laws. The Division of Corporation Finance expresses no view on any questions that may be raised by the proposed transaction, including but not limited to the adequacy of disclosure concerning an applicability of any other federal or state laws to the proposed transaction. Sincerely, For the Commission, By the Division of Corporation Finance pursuant to delegated authority, Brian V. Breheny Chief, Office of Mergers and Acquisitions Division of Corporation Finance enclosure

LLP FRANKFURT AM MAlN
CHl?lSTOF '$0,DRVANDZI?
"cc,"5k,,>"ALr
UI? r!LL ~01.l FR IBOLD
"CCKT9ANIYILT
I__rno mP"W or OnUILLcs
MLMOL" OrriiL W ,an" DR WFRNER MLlCl?
MAlN TOWER Dl? SlLr'HAN nARTtIFILMESS FRLcMrsAN,"ALr WcMnc" or T,,C NC>" .,O,,K "a, ,,LCH,~A,<WAL r NEUE MAINZER STRASSE 52 MCMLiiX O+ ,Mi NIW "ORK "An HANNO Sl~Ll?l~lCH PFCYiSlliWALT ANCIRES DF LA CliLJZ 603 1 1 FRANKFURT AM MAlN nonaoo ,xnrcNi,,,a, h"OPNLI AT LAW ,,,sn> COLOGNE h>C,<"CR or,,,c nL#cNoan,,,,c DR W0LI:GANG KNAI'I' -t 49 (69) 97 103-0 A,dD NLV, "OX,< "a% XFCYTSANIVACT Awmiihu -TAU DL OPU<LLLLI FACSIMILE + 49 (69) 97103-199 WARCI A GREENBLI2G "nOllPILY ir L,IW ,119A1 MFM"CR orT!4c NC," ""RK UN, Ti4OMAS M BLJHL "CC,"5A,d"AL, AVOCAT AU nA",,EAu DL ,,A,,,+ WWW CLEARYGOTTLIEB COM DR KLAUS IIIEHMER ,IICYI9,1NIYALT I'liill~tlR DIRK SIIIROFDFR ncc,"sAN>,,ALT DR GABRICLC A171 LL-HACHLR JOHN I'ALLNBERG "ICIITDAR~,~LTIN NEW YORK . WASHINGTON, DC . PARIS . BRUSSE1.S Mr,""cn or,,,c NC," "0°K W,\H mnPNn AT L%",U51// MLML\L,4 0,,HL NW, ""Plk n,>R LONDON . MOSCOW. COLOGNE DR THOMAS KOPP UR ROMINA POL1 FY ROME. MILAN . HONG KONG . BElJlNG RbCHrsANwAL, "iCl"ilNWdLTl,l DR IF DANICL WLYCIE "ICIITLAlllYILT >TLU,,,,,I*Ar, * Dl< MICHALL UREMS XrCI,rsANIV"LT MLMOL" or Tiii NLW YUitK "I" MLML,L,< "b IHL ,Ab$" "<>WK RA" BY E-MAIL AND BY HAND Brian V. Brel~eny, Esq. Chief, Office of Mergers and Acquisitions Division of Corporation Finance Christina E. Chalk, Esq. Special Counsel, Office of Mergers and Acquisitioil Division of Corporation Finance Securities and Exchange Conlnlission 100 F Street, N.W. Washington, D.C. 20549 Ladies and Gentlemen:
We are writing on behalf of our clients Bayer Aktiengesellschaft, a Gerillan stock corporation ("Bayer"), and Dritte BV GmbH (the "Offeror" and, together with Bayer, the "Baycr Entities"). As of Septcinber 8,2006, the Offeror owned approxinlately 95.112% of thc ordinary shares wit11 no par value (the "Ordinary Sl~ares"), includiilg Ordiilary Shares represented by American Depositary Shares (the "ADSs" and, together with the Ordinary Shares, the "Shares"), of Schering Aktiengesellschaft, a Gerillan stock corporation ("Scl~erii~g"), outstanding as of that date (excluding treasury shares). The Offeror acquired these Ordinary Shares pursuant to, outside of and following the earlier voluntary tender offer (the "~oluiltary Tender Offer") for the Shares of Schering described in letters of Latl~aill& Watkins liled wit11 the Securities and Exchange Con~nlission (the "Commission") on April 12, 2006 and June 12, 2006 and in the Offer Docunlent filed as Exhibit (a)(l)(A) to the
Schedule TO filed by the Bayer Entities on April 13, 2006, as ailleilded. The Voluntary
Tender Offer concluded on July 6,2006.

• COLOGNE OFFICE +49 (221 ) 80040 0 FACSIMILE +49 (221 ) 80040-1 99

We arc writing to request that the staff (the "Staff')of the Division of Corporation Finance of the Coininission (the "Divjsion of Coi-poration Finance") grant to the Rayer Entities the exeinptive and no action relief froin the provisions of Rules 14d-1 O(a)(2), 14d-11, 14d-11 (f)and 14e- 1 (b) proinulgated under the Securities Exchange Act of 1934, as anlended (the "&change Act") described below. Overview On July 3 1, 2006, the Offeror and Scheriilg entered illto a doinination and profit and loss transler agreement (the "Doinination Agreement"). As provided by Gei~nan corporate law, thc Domination Agreement provides that the nlanageinent of Schering must follow the instructions of the Offeror in all respects relating to the managen~ent of Schering. All profits of Schering (other than those required to be added to statutory reserves) are transferred to the Olferor, and the Offeror inust provide ainounts to Schering to ensure Schering does not show a loss in its incoine statement. Pursuant to the Gernlan Stock Corporation Act (Aktiengesetz, the "Stock Corporation Act"), the effectiveness of the Doinination Agreeinent requires both the consent of the shareholders of Schering, which the Rayer Entities and Schering obtained at an extraordinary shareholders' ineetiilg of Schering held on Septenlber 13,2006, and of Rayer in its capacity as sole sl~arel~oldcr of the Olferor, and the subsequent registration of the Doininatioil Agreenlent in the Conlinercia1 Register (Handelsregister) of the Local Court (Amtsgericht) in Charlottenburg, Berlin, which is where the registered corporate office of Schcring is located. The Doinination Agreeinent will bcconle legally effective on the day of such registration (the "Effective Date"). Pulrsuant to the Stock Corporation Act, as a meails of protecting the interests of the shareholders of Schering other tl~an the Rayer Entities, the Doinination Agreeinelit nlust provide for (i) adequate coinpensation for unaffiliated shareholders by ineans of recurring payinents in proportion to their share in the share capital (coinpensation payments), colloqrlially rcferred to as a guaranteed dividend (the "manteed Dividend") and (ii) an undei-taking of the Offeror to purchase, during a certain period of time and at the request of any rlilaffiliated shareholder of Schering, its Shares for an adequate cash coinpensation (the "Put Price") provided for in the Doinination Agreenlent (the "Put Rights"). The Bayer Entities and Schering engaged, on a joint basis, KPMG Deutsche Treuhand-Gesellscl~aft ("KPMG") as an independent expert to assist in deternlining the adequate anlount of the Guaranteed Dividend and the Put Price to be paid. Pursuant to the Stock Corporation Act, the Doinination Agreement, including the ainount of the Put Price, is subject to exainination by one or inore court appointed qualified auditors. These court appointed auditors are required to issue a written report stating their findings. Under applicable Gerinan law,
the ainouilt payable by the Offeror to any unaffiliated shareholdcr exercising its Put Right with respect to its Shares on ally date is equal to the Put Price provided for in the Doininatioil Agreenlent plus acciued interest thcreon from but excluding the Effcctive Date of the Doinination Agreement at a statutory interest rate (the "Statutory Interest"), which Statutory Interest is reduced by any Guaranteed Dividend payinents that have been paid. The initial offering period will coillnlence on the date (the "Commencen~ei~t @') on which the Offeror has published the meails to exercise the Put Rights, wl~ich will proinptly follow the datc (the "&gistration Announceinent Date") on which the registration

of the Doillination Agreenlent in the Commercial Register is deemed publicly annouiiced by the local court responsible for the Conlmercial Register in accorda~lce with Section 10 of the Gernlan Commercial Code (I-landelsgesetzbuch, the "Con~mercial Code") and continue for 20 business days as required by Rule 14e-1 (a) under the Exchange Act. We hereby rcquest that the Staff of the Division of Corporation Finance graiit the Bayer Entities exenlptive rclief from the provisions of Rule 14d-11 under the Excha~lge Act to allow a subsequent offering period which would begin on the day following the twentieth business day following the Conlnlencenlent Date and end on the date that is two nlonths after the Registration Annoui~cc~llent Datc, subject to extension to the extent required by German law (the "Subsequent Offer ~eriod").' In addition, we reqncst that the Staff of the Division of Corporation Finailce grant the Bayer Entities exenlptive relief froill the provisions of Rule 14d-lO(a)(2) and Rule 14d-1 l(f) under the Exchange Act to allow the required payillent of Statutory Iilterest on the Put Price (and the related potential reduction of such Statutory Interest payillent in connection with the payment of any required Guaranteed Dividend) and confirm that it will not reconlnlend any enforcement action against any of the Baycr Entities under Rule 14c-1 (b) under the Exchange Act, in connection with the payillent of fluctuating offer consideration during the Initial Offer Period and the Subsequent Offer ~eriod.~ The Offeror acknowledges that, to the extent the Put Rights senlain outstanding after July 6, 2007, the last day of the one-year period following the terillination of the Volruiitary Tender Offer, it will be sub-ject to the requirenlents of Rule 13e-3 under the Exchange Act. The Offeror does not request exeinptive relief with respect to these obligations under Rulc 13e-3 in this letter. Background Information A description of the terms and conditioils of the Voluntaiy Tender Offer, as well as certain background information relating to the Bayer Entities, Schering and the Shares, is set forth in letters of Lathaill & Watkiils filed with the Coillillission on April 12, 2006 and June 12,2006 (the "Original No-Action Request Letters"), copies of which are attached hereto for the convenience of the Staff, and in the Offer Docunlent filed as Exhibit (a)(l)(A) to the Schedulc TO filed by the Bayer Entities 011 April 13, 2006, as amended. Pursuant to, outside of and following the Voluntary Tender Offer con~pleted on July 6,2006, the Offeror acquired a total of 18 1,553,299 Shares, representing approxiillately 95.1 12% of the Shares (excluding treasury shares) outstalldillg as of September 8,2006. 1 Wc believe that the relicf requested is virt~ially identical to the relief granted by the Commission in:

Offer by BCP Crystal Acqisition
CJnlbH & Co., et al for Celanese AG, File No. 5-57467 (Dcc. 16, 2004); and co~isistc~it wrth thc rel~ef granted by the Comnssion 111 a number of sinlilar transactions Offer by Sanofi￾Synthelabo for Ordinary Shares and ADSs of Ave~it~s (June 10, 2004), Serena Software, Inc. Offer for Shares

and ADSs of Merant plc (April 13, 2004), Schlumbcrger Lim~ted's Offer for Serna plc (March 2, 2001); and

Anlerada Hess Corporati011 Offer for Shares and ADSs of LASMO plc (December 13, 2000).

2 We believc that the relief requested is VJI-tually identical to the relief granted by thc Comnliss~on in the Offer by BCP Crystal Acquisition CJnibH & Co ,et a1 for Cela~iese AG, F~le No. 5-57467 (Dec. 16, 2004).

For the reasons described in the Original No-Action Request Letter dated April 12, 2006 undcr the caption "Qualification for Tier II RelieL" and because the shareholdii~gstructure has changed significantly due to the Voluntary Tender Offer, the Offeror has beem unable to obtain reliable inforillation as to the nuinber or percentage of the reinailling approximately 7.6% of the Shares outstailding that were owled by U.S. holders (as detesnlined in accordancc with Rule 14d-1 (d) ofthe Exchange Act). The Put Rights Doinination Agreement On July 3 1, 2006, the Offeror and Schcriilg entered into the Doillillation Agreement, pursuant to which Scheriilg agreed to submit itself to the direction of, and to transfer its entire profits to, the Offeror, and the Offeror agreed to conlpensate Schering for any aimual losses incurred during the tern1 of the Donlinatioil Agreement. Thc Doinination Agrccnlent was approvcd by the shareholders of Schering at an extraordinary general nlecting of Scheriilg shareholders held on September 13, 2006. Bayer, in its capacity as sole shareholder of the Offeror, has also consented to the Doillillation Agreement. The Doillination Agreement will beconle effective upon its registration in the Conlmercial Register (Handelsregister) of the Local Court (Amtsgericht) in Charlottcnburg, Berlin, which is where thc registered corporate office of Schering is located. Schei.ing subnlitted thc Domination Agrcenlent for registration in the Conlnlercial Register on September 14, 2006. However, in ccrtain circumstances dissenting shareholders have the right to institute proceedings challengillg the shareholders' resolution and, based 011 prior cases, Bayer expects that such proceediilgs will be instituted in respect of this resolution. Undcr Gerinan law and practice, this nlay lead to a delay in registration of as long as one year or even longer. It is thus impossible to deternline with cei-tainty when the Doillination Agreement will be registered. Conlnlencing on the Effective Date of the Doillination Agreement, the Offeror will be obligated to purchase Shares at any unaffiliated shareholder's request pursuant to such sl~arel~older'sPut Rights against payment of the Put Price in accordance with al~plicablc German law. According to the terms of the Doillination Agreement and in accordancc with applicable Gernlan law, the obligation of the Ofleror to purchase Shares at ally unaffiliated share1~oldei~'srcquest pursuant to the Put Rights is linlited to, but illust remaill available for, a period expiring two nlonths following the Registration Announcement Date. Howevcr, if any legal proceedings concerning the adequacy of the an~oulnt of the Put Pricc or of the Guaranteed Dividcnd (S'7ruchverfahren) ase coillnleilced by shareholders of Schering, as is thcir right under the Stock Corporation Act and the Act on the Court Review of Shareholder Conlpensation (Spruchverfahrensgesdz, the "Review Act"), the obligation of the Offeror to ~ui-chaseShares
at any unaffiliated shareholder's request pursuant to the Put Rights nlust continue to cxist until the expiration of two illonths after the date on which public announcement is made of the resolution of the last such proceeding. This can and usually does take a very long time, in excess of a year in illost cases, and soine proceedings havc talcen in excess of five years. The Put Right nlust senlain in existence for all of this time. (These proceediilgs under the Review Act are separate fro111 those referred to in the preceding paragraph and do not hinder registration of the Doillination Agreenlent in the Conlmercial Register, but instead lead to a leilgthening of the period in which the Put Rights senlain available.)

Unaffiliated shareholder protections in connection with the Dolnination Agreement As ina~ldated by Gerrnail law, the Donlination Agreeinent includes provisions designed to protect Scl~ering's unaffiliated shareholders. Section 304(1) of the Stock Corporation Act requires any domination and profit and loss transfer agreclnent to provide unaffiliated shareholders of the controlled conlpany with colllpensation in the Corn1 of recurring payments (in lieu of dividends) in proportion to their share in the share capital. These payinents to uu~affiliated sl~areholders, which we refer to as "Guaranteed Dividends", nlust contillue for so long as the donlination and profit and loss transfer agreeinent remains in effect and the doininating conlpany owns less than 100% of the outstanding shares (excluding treasury shares) of the controlled company. If the Effective Date is in 2006, the first such annual Guaranteed Dividend is expected to become payable to Schering's then unaffiliated sl~areholders pursuant to the Donlinatioll Agreeinent on the first business day following the annual general meeting of Schering sl~areholders to be held in mid-2007. In addition, Scction 305(1) of the Stock Corporation Act requires any doinination and profit and loss transfer agreement to provide, upon effectiveness thereof, for an obligation of the dominating company to purchase, at any unaffiliated shareholder's request, such unaffiliated shareholder's sharcs in the controlled colnpany for "adequatc cash compensation" (angernessene Barahfindung), which we refer to hcrein as the "Put Price." Thc Put Price is payable pronlptly upon such purchase. IJnder Section 305(3) of the Stock Corporation Act, the Put Pricc provided in a donlination and profit and loss transfer agreement nus st take into consideratioil the condition of the controlled company at the time of the approval ofthc don~i~lationad profit and loss transfer agreenlent by the controlled company's sharcholder meeting. The Put Pricc is payable together wit11 an ainount of intercst, which wc refer to as Statutory Interest, accruing thercon fro111 but excluding the Efrective Date to the date on which the Put Right is validly exercised, as described above. Any accrued Statutory Interest payable on the Put Pricc to any shareholder requesting the purchase of its shares by the dominating conlpany is reduced by the amount of any Guaranteed Dividend that has been paid on that sl~arel~older's Shares on or before the date the Put Price is paid. The parties to a donlination and profit and loss transfer agreement typically engage, on a joint basis, an independent expcrt to assist in determining the adequate amount of the Put Price and the adequate alnount of the Guaranteed Dividend to be paid. The independent expert deternlines these amounts based on a valuation of the con~pany's business and presents its findings in a report to both parties. Gerinan law provides that the management board of each party to a domination and profit and
loss transfer agreenlent nlust produce a report, or the inanagenlent boards of both parties nlay producc a joint report, which sets forth detailed information on the doinination and profit and loss transfer agreement, including reasons for coricluding the agreement and legal and econonlic explanations regarding the amounts of the Put Price and Guaranteed Dividend payments. In addition, the District Court (Landgericht) (in the jurisdiction where tl~e controlled conlpany has its registered seat), upon request by the parties to the doinination and profit and loss transfer agreemcnt, chooses and appoints by court order one or morc duly qualilied auditors (Ve~trag~sprufer)to revicw the agreement. Thesc court appointed auditors are required to issue a writtcn report stating their findings. This couit-mandated audit and the rclated report are required bcfore a donlination and profit and loss transfer agreeincnt can beconlc effective. KPMG served as the independent expert for the Offeror and Schering in connectioil wit11 the Domination Agreement. In its report dated July 27, 2006 (thc "KPMG Report"), KPMG determined that the adcquate cash conlpensation for the Put Rights would

be €87.63 per Share. Nevci~theless tlle Bayer Entities sclected C89.00 as the Put Price in the Donlination Agreement. The court-appointed auditor, Wart11 & Klein GmbH Wirtschaftspriifui~gsgcsellscl~aft ("W&K"), confirmed that the Put Price of C89.00 set forth in the Domillation Agreement was adequate under applicable Gerillail law in a separate report dated August 2, 2006 (the "W&K Report"). If the weighted average price of the Shares for the three inonths preccding the extraordinary general meeting of Schering's shareholders held on September 13, 2006, as published by the German Federal Financial Supervisory Auithority (Rundesanstalt fur Finanzdienst1eiLstungsaufsich~)on its webpage for Septenlber 13, 2006, exceeds C89.00 per Share, the Put Price will be increased accordingly. The Doinination Agreeinent was executed on July 3 1, 2006. Also on July 3 1, 2006, the Mairagement Board of Schering and the Managing Directors of the Offeror, issued their joint report (the "Joint Report") on the Doinillation Agreement. The Joint Report, along with thc KPMG Report and the W&K Report, were made available to shareholders of Schering beginning on August 4, 2006. The Donlination Agreement, the Joint Report, the KPMG Repoi-t and tlle W&K Report, among other documents, are included in a pre￾coinlnencement communication filed with the Cominission by Bayer under cover of Schedule TO on August 7, 2006. Structure of the Put Rights The Put Rights are nlandated by, subject to, and required and structured to be exercisablc in accordance with, Section 305 of the Stock Corporation Act and the applicable rulings and interpretations thereunder. In addition, except to the extent permitted pursuant to the relief requcsted herein, thcy are subject to Sections 14(d) and 14(c) of the Exchange Act and the rules and regulations proinulgated thereunder. IJnlike the Voluntary Tender Offer, the Put Rights are not considered, from a Gernlan legal perspective, to constitute a takeover offer or a tender offer for any purposes. They are therefore not subject to regulation under the Gerinan Securities Acquisition and Takeover Act (WpUG,the "Takcover Code"). In line therewith and in contrast to the Voluntary Tender Offer, the Offeror is not required, for instance, to publish or disseininate an offer doculllent in Germany or coinply with other Gernlan takcover offer rulcs in connection with the Put Rights. Under German law and practice, the Offeror would siinply notify depositary banks, proinptly after the Registration Anllouncement Date, that thc Doillination Agrecinent had become effective, depositary banks would then scnd a short lettcr to clients inaking thein aware of the availability of the Put Rights, and a shareholder would notify its depositary bank if it desired to request the Offeror to purchase its Sharcs against payincnt of the Put Price. In addition, it is also customary in Ge~.many, although not legally required, for the Offeror to publish an advertisement in Gernlan
newspapers to illforin shareholders about the availability of the Put Rights. If an unaffiliated shareholder wishes to surrender Shares against paynleilt of the Put Price, it could do so at any time from the Effective ate^ until two months after the Registration Anilouilcernent Date (tlic "Exercise Period") (the Exercise Period being subject to extension in the event of legal challenges to the adequacy of the ainount of the Put Price or thc In practlcc, the shareholders are first placed In a position to exercise the Put R~ghts once the Offeror

has made the not~ficat~ons described above, which havc the effect of publishing the ineails to exercise thein 6

1

Guaranteed Dividend as described above) and receive the applicable Put Price within a few days. During the Exercise Period, the Offeror is required under applicable German law to accept Shares of any unaffiliated shareholder that requests the Offeror to purchase them and make proinpt payillent of the applicable Put Price. In order to coilduct the Put Rights in compliance with Sections 14(d) and 14(e) of the Exchange Act and the rules and regulations promulgated thereunder (except to the extent permitted pursuant to the relief rcquested herein) while still coillplyiilg with the require~llents of Gcrillan law and practice, we intend to structure the Put Rights so that, froill a U.S. securities law perspective, it initially runs 20 business days from its conlmencement on the Registration Announcemeilt Date (the "Initial Offer Period"). Although under German law an unaffiliated shareholder can surrender its Shares and receive the Put Price very quickly, to conlply with U.S. tender offer rules, we illtend to grant 1J.S. shareholders who exercise thcir Put Right with respect to their Shares the right to withdraw during the Initial Offer Period by waiting to accept their Shares and pay the Put Price (plus the Statutory Interest mandated under German law from but excluding the Effective Date) until the expiration of the Initial Offer Period. The Put Rights will be consunlmated with respcct to the U.S. shareholders on that date and those who have exercised their Put Right with respect to their Sharcs at any time before that date will receive their Put Price (together with the Statutory Interest accrued thereon) pronlptly thereafter. Following conlpletion of the Initial Offer Pcriod, we intend to conlinence the Subsequent Offer Period, during wl~ich payillent of the Put Price (and Statutory Interest accrued thereon) will be made proillptly as and wheil Shares are surrendered, but during which withdrawal rights will no longer be providcd. Assuil~ing thc exemptive relief requested ill this letter is granted, the Subscquent Offer Period will run until thc Exercisc Period expires undcr applicable German law. Tlie Offeror will make payments to the unaffiliated shareholders who surrender their Shares in the same manner and currency as in the Voluntary Tender Offer as described in the Original No-Action Request Letter. If, at any point during the Exercise Period, thc Shares beconle eligible for deregistration under the Exchailgc Act, we expect that Schering would effect sllch deregistration. However, for the duration of the Exercise Period, the Bayer Entities would coiltiilue to conlply with Sections 14(d) and 14(e) of the Exchange Act and the rulcs and rcgulations proillulgated thereunder (except to the extent perinittcd pursuailt to the relief requested herein), unless and until they request, and are granted, further relief fro111 the Staff of the Commission. As noted above, the Offeror currently owns more than 95% of the share capital of Schering. This
enal3les it to effect a conlpulsory acquisition of all renlaining Shares held by Unaffiliated Shareholders, or "squeeze-out" (the "Squeeze-out"), pursuant to Sections 327a et seq of the German Stock Corporatioil Act (AktG). In the Squeeze-out, the Shares held by any Ilnaffiliatcd Schering Shareholders that continue to hold Shares on the effective date of the Squecze-Out would be transferred by operation of law to the Offeror in exchange for adequate cash conlpeilsatioil (BarahJindung). The cash conlpe~lsation would be set by a new procedure very similar to that which took place ill conllectioil with the Put Rights. The Squeeze-out would be subject to thc approval of the holders of a simple majority of the votes cast at a gcneral sl~areholders' meeting of Schcrii~g, which approval would be assured duc to the Offeror's holding in excess of 95% of the Shares. This resolutioil would be binding upon all Unaffiliated Schering Shareholders renlainiilg at that time, and no holder could choose thereafter to rcillain a securityholder of Schering. Following a Squeeze-out, the foriller renlaillirlg Unaffiliated Schering Sccurityholders would only havc a right to receivc the

adequate cash compensation, and their Shares would no longer represent an equity interest in Schering, but only such right to such compensation. We note that the transfer of Shares in a Squeeze-out would occur by operation of German law upon registration of such resolution in the Comnlercial Register, and accordingly would not involve a tender offer. Accordingly, we do not believe that the transfers of Shares in the Squeeze-out would be subjcct to 11.S. tender offer rules. To the extent the Offeror effects the Squeeze-out at a time at which the Put Rights continue to exist, the Shares of any renlainii~g Unaffiliated Scherillg Shareholder that has not exercised its Put Rights with respect to those Shares at the time the Squeeze-out is effected would be transferred to the Offeror pursuant to the Squeeze-out, without regard to whether the adequate conlpellsation to be paid to such Schering Shareholder in the Squeeze￾out is higher or lower than the Put Price offered pursuant to the Put Rights. The Offeror has already announced, incl~xding tlvough its filing of an anlelldlnent to its Schedule 13D filed with the Coinnlission on September 12, 2006, that it owns enough Shares to eCfect a Squeeze￾out. I-Iowever, it is not yet certain when the Offeror will seek to effect the Squeeze-out and therefore whetlies the Put Rights will still be existing at that time. To enable any Unaffiliated Schcring Shareholder relnainillg at that time to decide whether to exercise the Put Rights or await the Squeeze-out, Rayer and the Offeror have represented to us that, if the Squceze-out would occur at a tilnc when Put Rights colltil~ue to exist, the Offeror will announce, and file with the Colnlllission under cover of Schedule TO, iiot fewer than ten days prior to the date on which thc Squeeze-out will occur, the datc on which the Squeeze-out will be effective, and a colnparison of the Put Price to the adequate cash conlpellsation to be paid in the Squeeze￾out. Extension of the Subsequent Offer Period Rule 14d- 1 1 under the Exchangc Act allows an offeror to providc a subsequent offering period of tlvce to twenty business days. Applicable German law and the terins of the Dolnination Agreelnent require, however, that unaffiliated shareholders be cntitled to put their Shares against pron~pt paynlellt of the Put Price for a period of at least two lnontlls followillg the date that the registration of tlie Dolnination Agreelnellt in the Colnlllercial Register is deemed to be publicly announced in accordance with Scction 10 of the Colnnlercial Code, subject to extension in the event that dissentillg shareholders institute legal proceedings whereby the adequacy of the anlount of the Put Price or the Guaranteed Dividend is challenged and then is subject to review by the German courts (Spruchverfahren).We are unable to predict how long it nlight take to resolve any challellges of the alliount of the Put Price or the Guaranteed Dividend, but ullderstalld that they are quite likcly
and that their resolution could take years; in solne cases, the resolution has taken Inore than five years. The Put Rights must under Gernlan law remain available thso~xghouthis time. Once all challcges have been finally resolved, whether by final judicial determination, settlement, withdrawal or otherwise, the Offeror relnains obligated to purchase Shares at any unaffiliated shareholder's request purs~xallto the Put Rights (at the higher price deterlnillcd pursuant to tlie determillation or settlement, if applicable; for purposes of this letter "Put Price" includes any such higher price), for two lllonths after the date on which public anouiicemellt is nlade of the resolution of the last of slxch proceedings. This extension is requircd under Gernlan law so that unaffiliated shareholders can collsider for a period of time followillg final resohxtion of these proceedings whether to put their shares. We are therefore respectfully rcquestillg that the Staff of the Division of Corporation Finance grant to the Bayer Entities exeinptive relief fro111 Rule 14d-11 under the Exchange Act, to allow, in

accordance with Gernian law and practice, the Offeror to provide a subscquent offering period that extends 1rom the twenty-first day followiilg the Registration Announcement Date for so long as the Offeror's obligation to purchase Shares at the request of any unaffiliated shareholder pursuant to the Put Rights exists pursuant to applicable Gerinan law. We believe the relief requested herein is virtually identical to the relief granted by the Conln~ission with respect to: the Offer by BCP Crystal Acquisition GmbH & Co., et a1 for Celanese AG, File No. 5-57467 (Dec. 16, 2004); and consistent with that granted by the Conlmission in siinilar situations in the past, such as that granted with respect to: the Offer by Sanofi-Synthilabo for Ordinary Shares and ADSs of Aventis (June 10, 2004); the Offer by Serena Software, Inc. for Shares and ADSs of Merant plc (April 13,2004); the Offer by Schlunlberger Limited for Ordinary Shares of Senla plc (March 2, 200 1); and the Offer by Anlerada Hess Corporation for Shares and ADSs of LASMO plc (December 13, 2000). Payment of Statutory Interest on the Put Price As described above, the Offeror is obligated under Genllan law to pay, in addition to the Put Price per Share deterinined in the Doinination Agreement, Statutory Interest tllereon from the day after the Effective Date, but subject to reduction to the extent of any Guaranteed Dividend paynlent that is paid. Rule 14d-10(a)(2) provides that no bidder shall make a tender offer unless the consideration paid to any security holder pursuant to the tendcr offer is the highest consideration paid to any other security holder during such tender offer. Thc pronlulgating release (Releases Nos. 33-6653 and 34-23241 ;corrected in Releases No. 33-6653B and 34- 2324 1 B) indicates that the purpose of Rule 14d- 10(a)(2) is to eliminate discriininatory treatnlent anlong security holders who inay desire to tender their shares. The obligation o1tlle Offeror to pay Statutory Interest on thc Put Price during the Initial Offer Period and the Subsequent Offer Period, and any reduction thereof as a result of any Guaranteed Dividend payment illade by the Offcror, would conflict with the provisions of Rule 14d-10(a)(2) as the consideration paid to unaffiliated shareholders of Schering who put their Shares would depend on when such Put Rights are exercised. We are therefore respectfully requesting that the Staff of the Division of Corporation Finance grant to the Bayer Entities exeinptive relief under Rule 14d-10(a)(2) under the Exchange Act to perinit the Offeror to pay consideration which will fluctuate during the Initial Offer Period and the Subsequent Offer Period because of the Statutory Interest accrued thcreon and any reductions thereof as a rcsult of Guaranteed Dividend paynlents bciilg made. Because the differeilce in payinents is solely in respect of the interest required to be paid under German law at the statutory rate, we believe that the requcsted relie1 is consistent
with the purpose of Rule 14d- 10(a)(2). In addition, to the extent that Rule 14e-1 (b) under the Exchange Act, which prohibits an offeror from, aillong other things, increasing or decreasing the consideration offcred in a tcnder of1er unless the tender of1er reinains open for at least 10 U.S. business days from the date that notice of such change is first published or sent or given to security holders, could be decnled applicable by virtue of the chailge in the Put Price payable during thc Initial Offer Period or the Subsequent Offer Period due to the Statutory Interest payinent requirements of Gerinan law, we are respectfully requesting that the Staff of the Division of Corporation Finance confirm that it will not reconlnlend any enforcement action against any of the Bayer Entitics under Rule 14e-1 (b) to allow the Offeror to offer consideration which will fluctuatc during the Initial Offer Period and the Subsequent Offer Period because of the

Statutory Illtercst accrued and any reductiolls thcreof as a result of any Guaranteed Dividcild paylllents being made. Rule 14d-11(f) under the Exchange Act requires that the alnoullt of collsideratioll being offered during the Subsequent Offer Period be the samc as that offered during the Initial Offer Period. By virtue of the daily accrual of the Statutoly Interest, however, and the potential reductioll thereof that will occur if Guaranteed Dividend paylnents are made, as required by applicable Gcnnan law, this is not perlnissible under Gerlnall law in the context of the Put Rights. We are therefore respectfully requesting that the Staff of the Division of Col-poration Finance grant to the Bayer Entities exelnptive relief under Rule 14d￾1 1 (f) to offer collsideratioll during the Subsequent Offer Period which differs from that offered during the Initial Offer Period solely by virtue of the Statutory Interest accrued and ally rcductiolls thercof as a result of any Guasanteed Dividend paylnents being made. We believe the relief requested hereill with respect to the paylnent of Statutory Interest on thc Put Price is vistually identical to the relief granted by the Coinlnissioll with respect to the Offer by BCP Crystal Acquisitioll GmbH & Co., et a1 for Celanese AG, File No. 5-57467 (Dec. 16,2004). Request for Relief Based on the foregoing, we respectfully request that each of the Bayer Entities be granted exemptive relief and no action relief from the provisiolls of Rules 14d- 10(a)(2), 14d- 1 1, 14d- 1 1 (f) and 14e- 1 (b) prolnulgated under the Exchange Act in order to grant and perlnit exercises of the Put Rights in accordallce with lnalldatory Gerlnan law. If you have ally questions or require any f~lrther inforlnation, please contact the ulldersigllcd at t-49 69 971 03-0. If for ally reasoll you do not concur with any of the views expresscd in this lettcr, we respectfillly rcquest an oppodunity to confer with you before the issuance of any written response. Very tluly yours, Ad//$ Ward A. Gseenberg