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Sanofi takes charge of arranged marriage

Published on 24/05/04 at 12:56pm

Sanofi-Synthelabo chief executive Jean-Francois Dehecq is preparing his company to merge with larger Franco-German neighbours Aventis to create the world's third biggest pharmaceutical company, and must now deliver the bright future promised for the merged company.

After four months of bitter opposition, Aventis was forced to accept an improved offer of E55.3 billion from Sanofi - an arranged marriage orchestrated by a French government unabashed at supporting the deal in favour of Switzerland's Novartis, who had also expressed an interest.

Analysts at Deutsche Bank say the new company, to be called Sanofi-Aventis, is capable of delivering very strong share earnings growth of 14% between 2003-2008 if the company can hold on to 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 Aventis' rheumatoid arthritis treatment Arava, type II diabetic treatment Amaryl and ACE inhibitor Tritace.

The analysts also voiced concern about Sanofi's "poorly defined" plans for making cost savings from the merger. In attempting to repel Sanofi's plans, Aventis chairman Igor Landau very effectively exposed areas of doubt in relation to cost savings, something that the new company will have to work hard to eliminate.

"This has not been helped by the company's 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 Finance Minister Nicolas Sarkozy, who 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 Mr Dehecq to raise his company's offer and advised Mr Landau to start friendly discussions with Sanofi.

The dominant company 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.

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

Mr Landau 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."

In particular, investors are keen to see Aventis' finance director Patrick Langlois take on the job in the merged company because of his experience in past mergers.

The deal still awaits approval from US regulators the Federal Trade Commission, expected by early June, with Aventis shareholders anticipated to vote in favour on 11 June.

Other key dates for the merged company include an FDA review of Lilly's Alimta, which could emege as a major competitor to Aventis' cancer drug Taxotere, while new data on potential blockbuster, obesity drug Acomplia and the US filing of inhaled insulin product Exubera will both be early pluses or minuses for the company.

The all-important Plavix patent court case is unlikely to be resolved until well into 2005, but a pre-trial court hearing in the fourth quarter will set a date for the showdown.


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