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Intervention from Paris secures French future for Aventis

Published on 07/05/04 at 01:01pm

Aventis has dropped its long-running opposition to a takeover bid by French compatriots Sanofi-Synthlabo after the offer to its shareholders was increased from E48.5 billion to E55.3 billion, now positioned as a "friendly improved offer."

The agreement has come suddenly after four months of bitter opposition from Aventis, which had publicly been preparing continued resistance, including an alternative merger with Novartis.

The French government had made it very clear it would do everything in its power to block a Novartis-Aventis merger, and ministerial intervention is understood to have ensured the creation of a French pharmaceutical giant.

The new company will be known as Sanofi-Aventis and will become the third-largest pharmaceutical group in the world behind Pfizer and GSK, with Sanofi Jean-Francois Dehecq predicting the deal will be closed by the end of June.

Analysts at Deutsche Bank say Sanofi-Aventis is capable of delivering very strong share earnings growth of 14% between 2003-8 if the company can hold onto the US patent for anti-blood clotting treatment Plavix but says the chances of this happening are 50/50.

If generics companies are successful in challenging the patent, the analysts expect earnings to take a cut of about 10% from 2005.

The merged company will also face generic threats to other big selling products, including Sanofi sleeping pill Ambien, cancer treatment Eloxatin and Aventisrheumatoid arthritis treatment Arava, type II diabetic treatment Amaryl and ACE inhibitor Tritace.

The analysts also voiced concern about Sanofi "poorly defined"plans for making cost savings from the merger.

"This has not been helped by the company insistence that job losses in the main country of employee overlap, France, will be minimal. It is also unlikely to be helped by the evident bitterness between the two companies," they said.

This bitterness appears to have been bridged by the intervention of the French government, the Financial Times reporting that Finance Minister Nicolas Sarkozy contacted Sanofi and Aventis after Novartis confirmed on 22 April that it had begun talks with Aventis' board. Mr Sarkozy is understood to have told Jean-Francois Dehecq to raise his company offer and advised Igor Landau to start friendly discussions with Sanofi.

Sanofi was careful to announce that both corporate cultures would be respected and that the combined company would have a strong presence in France and Germany.

Jean-Francois Dehecq will lead Sanofi-Aventis and has given assurances directors and its management committee members will be drawn in equal numbers from the two companies.

Igor Landau, chairman of Aventis said: "We are pleased to have reached an agreement that recognises the value of Aventis from a financial standpoint as well as the talent and expertise of our employees.

"By being equally represented in the management of Sanofi-Aventis, this agreement provides the necessary conditions for the success and development of the new group."

The direct involvement of the French government in the battle for Aventis has been observed with strong disapproval in the business community and by the European Union, with national considerations openly championed over market economics.

Cut out of the deal, Novartis duly announced it had dropped plans to merge with Sanofi, citing the "strong intervention" of the French government as the leading factor.

The deal has still to gain regulatory approval and the US Federal Trade Commission has recently requested more information on the combination, despite Sanofi revealing its intentions to the agency as early as December last year.

Sanofi says it does not expect US approval to delay the completion of the deal or any materially affect the business.

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