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Sanofi makes takeover bid for 'weakened' Aventis

Published on 26/01/04 at 04:20pm

Sanofi-Synthelabo has made a pre-emptive E47 billion takeover bid for Aventis with the aim of creating the world's third-biggest drugmaker and Europe's number one pharma company.

Sanofi says the tie-up would allow it to continue its strong growth through new marketing synergies and reduced exposure to R&D risks in an increasingly competitive sector. If cleared by shareholders, the new company will have the second-biggest salesforce in the all-important US market, and Sanofi expects it to deliver E1.6 billion in annual synergies before 2006.

Only last week, both companies were forced to deny growing rumours they were in merger talks, but Sanofi chief executive Jean-Francois Dehecq says his company wants to seize the initiative by buying its larger French rival.

Sanofi majority stakeholders L'Oreal and TOTAL recently indicated they would allow their current shareholder pact to lapse at the end of 2004, opening Sanofi up to possible takeover bids from companies such as Aventis.

"The world in which we live doesn't allow for things to be exposed for too long," Mr Dehecq said, "I would not be doing my job if I did not anticipate that  - we don't want to be on the receiving end."

Sanofi and Synthelabo merged in 1999 and since then Mr Dehecq has created one of the industry fastest growing companies, with an average earnings-per-share growth rate of 42% in its first three years.

The company's 2002 consolidated sales of E7.4 billion were barely a third of Aventis' 20.6 billion, and it employs just 30,000 people compared to the 70,000 working for its rival headquartered in Strasbourg.

But Sanofi's net income margin in 2002 of 24% far exceeded Aventis' 15%, and this is reflected in their similar market capitalisations and greater investor belief in the smaller company's ability to deliver growth.

Aventis has swiftly indicated its unhappiness with being on the receiving end of a hostile takeover, saying the offer to its shareholders is of "inferior value to its current stand-alone strategy." The company management board and supervisory board have now both rejected the offer comprised of 19% cash and 81% shares but Aventis appears to have indicated its openness to more attractive takeover offers from other companies, or that it may launch a major acquisition itself.

"The management board believes that there are other scenarios with a stronger industrial and social rationale," it said in a statement.

Another major obstacle to Sanofi's ambitions is the one significant crossover in the companies' portfolios - its anti-thrombotic Arixtra currently competes with Aventis' Lovenox. Sanofi has pre-empted demands from competition regulators, having decided it will sell-off Arixtra in favour of keeping the bigger-selling Lovenox. Meanwhile one of two colorectal cancer treatments, Aventis' Campto or Sanofi's Eloxatin, will probably have to be divested for the deal to be cleared.

Presenting the takeover bid to a Paris press conference, Sanofi's top executives were keen to stress their respect for Aventis, in particular its lifecycle management of Lovenox and Taxotere and how they prized its US infrastructure and direct presence in Japan. But Aventis has weathered growing criticism of its pipeline over the past year, which has combined with upcoming challenges to patents on Allegra and Lovenox to undermine confidence in the company.

Referring to these issues, Mr Dehecq said: "This company [Aventis] is a company that is weakened," and added that 'vultures' would now be circling to capitalise on the weakness, in an attempt to characterise Sanofi's bid as a contrasting non-aggressive takeover bid.

He also anticipated questions about the timing of the bid, saying it was not influenced by a US legal challenge later this year to the patent on blockbuster cardiovascular drug Plavix.

Mr Dehecq refused to say whether Aventis' R&D facilities in Romainville will survive the merger, but the site is most likely to be axed in cutbacks which analysts Exane expect to reduce the total workforce to around a quarter of its current total in France.

Negotiations with trade unions over job losses are expected to be a difficult but necessary task if and when the deal goes through, with Sanofi stressing its focus on creating a dynamic company at ease with itself.

 

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