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Aventis and Sanofi attempt to quash merger rumours

Published on 19/01/04 at 04:53pm

Sanofi-Synthelabo and Aventis have been forced to officially deny they are in merger talks after speculation sent shares soaring in both companies.

The Paris stock exchange asked the companies to clarify the position after analysts said the French rivals could be ready to merge, potentially creating a single company to challenge GSK's position as the world's second biggest pharma company by sales.

Analysts Exane say a merger in late 2004 early 2005 would boost the companies' profile with investors considerably and soften the blow of patent expiries for Aventis' Allegra and Lovenox and Sanofi's Ambien.

Exane, which has completed a comprehensive merger simulation, say Sanofi could emerge as the dominant partner in the merger, centred around its dynamic chief executive Jean-Francois Dehecq.

"The link-up of two complementary cultures is an opportunity to combine a strong entrepreneurial culture and good knowledge of the structures needed on an international scale," it commented.

Speculation about a possible tie-up between France's two biggest pharmaceutical companies has been re-ignited by the latter company's major shareholders, TOTAL and L'Oreal.

The companies control between them the majority of the pharma company's shareholder voting rights, and have maintained an agreement to work together since the Sanofi-Synthelabo merger in 1998. But the companies have now signalled the agreement will not be extended beyond December 2004, suggesting that TOTAL will look to divest its 24.5% share in the company.

The news reawakened speculation among investors and analysts of a tie-up between the two pharma companies which first surfaced a year ago when Mr Dehecq refused to rule out "something in the future" and Igor Landau, head of Aventis remarked similarly that it would be "completely absurd to rule out such a step".

Deutsche Bank analysts say the logic of a merger is strong, creating a company which would be number four in the cardiovascular market with $8 billion sales, and third in oncology behind Roche and Novartis, with around 10% of the sector.

A merged company would also create a US salesforce of 7,300, elevating it to the third largest behind Pfizer and GSK, and giving Sanofi in particular greater coverage in the most important market.

Sanofi has enjoyed industry leading growth over the last few years, fuelled by exceptional sales growth in its leading products, but could face generic competition to both Ambien and Eloxatin from 2005.

But challenges to the two of the companies' biggest products  - Aventis' Allegra and Sanofi's Plavix in 2004/5 will be crucial to its earnings profile and could effect whether the tie-up goes ahead or not.

Meanwhile Aventis recently responded to press speculation about its 'Reshaping Aventis' programme aimed at making savings internally in order to re-direct towards key R&D and marketing projects.

Mr Landau indicated the re-structure would attempt to go beyond processes and attempt to make the company culture much more dynamic.

"The key goal of Reshaping Aventis would be to further develop a culture that embraces innovation and change in order to constantly improve the quality of our business and free up the resources we need to invest in our product leadership strategy and accelerate the development of our pipeline," he said.

If a merger with Sanofi were to go ahead, Deutsche Bank estimate savings of E1.9 billion for the new entity, while Exane predicts a more modest E920 million.

Although both companies share a French heritage and were both formed from recent mergers, job losses and re-structuring in France could prove to be more difficult than in an Anglo-Saxon environment.

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