Sanofi Ups Offer to Win Aventis

The increasingly acrimonious three-month effort of French drug company Sanofi-Synthélabo to take over Aventis concluded last week when an improved second offer won acceptance by Aventis directors.

The improved bid raised by 14% the price Sanofi offered for Aventis, to roughly $66 billion--71% in Sanofi shares and 29% in cash. With the second bid, and continuing pressure from the French government to ensure an intra-France merger, a majority of 13 members of Aventis' board approved the deal. Two employee representatives opposed the offer, and the representative of major Aventis shareholder Kuwait Petroleum Corp. abstained.

The resulting company, to be called Sanofi-Aventis, will be the third largest pharmaceutical company worldwide, behind Pfizer and GlaxoSmithKline.

There will be an equal number of Aventis and Sanofi people on the new board of directors. Jean-François Dehecq, current Sanofi chairman, will be chairman and CEO. The merger is the latest of more than 300 acquisitions he has engineered to build a relatively small pharmaceutical company into a sector giant. Aventis CEO Igor Landau is expected to step down with a sizable severance package.

As the world's number three drug company, Sanofi-Aventis will be larger than Novartis, the Swiss firm that Aventis had tried to enlist as a white knight merger alternative to Sanofi.

Novartis Chairman Daniel Vasella said originally that his company would bid for Aventis only if the French government were to stay neutral. The government, however, remained staunchly in favor of the Sanofi offer, although it could not give overt backing.

Last week, the European Commission approved the proposed acquisition, subject to some conditions. To meet those conditions, Sanofi has pledged to sell or grant licenses for various pharmaceuticals in the areas of concern.

Sanofi will have to work hard to gain the synergies cited when the company made its initial offer at the end of January. At that time, Dehecq said he would seek synergies of just over $2 billion, through reduced cost of sales and other general savings and through optimization of R&D.

During the course of the bid battle, however, Dehecq made commitments to labor unions in both France and Germany, where the main operations of Aventis and Sanofi are located. And many analysts see looming cultural clashes between Sanofi and Aventis units, particularly in R&D, which might make Dehecq's job of cutting costs that much more difficult.