French Drug Makers in Face-off

French pharmaceuticals maker Sanofi-Synthélabo has launched a hostile bid for its larger French-German rival Aventis, which has scoffed at the advance.

The bid, worth slightly more than $76 per share or a total of $60 billion at current exchange rates, seems certain to be only the beginning salvo in what many analysts see as a bidding war. Sanofi will be forced to offer a higher price, they say, to finally secure shareholder support and to avert competitive bids from a possible white knight.

Sanofi, ranked about 13th in the world order of pharmaceutical companies, has sales running at the rate of $8.7 billion per year; Aventis' sales are about $18.5 billion, which makes it the eighth largest drug maker globally. Sanofi, however, is a faster growing company.

The combined company, Sanofi says, would have a large portfolio of fast-growing drugs, with nine products each having projected annual sales for 2003 of more than $600 million. It would have significant sales in the fast-growing areas of strategies for the central nervous system, oncology, diabetes, and urology, as well as treatments for cardiovascular and thrombosis problems. The combination would also have a strong position in the area of vaccines.

Sanofi's CEO, Jean-François Dehecq, says he is seeking synergies between the two companies of just over $2 billion per year, notably through savings in general and sales costs and through optimization of R&D. Roughly 10% of the savings would be achievable this year, he says, 60% in 2005, and 100% by 2006.

"We're sure this offer is an attractive one and that we can convince the shareholders of Aventis in the coming days, weeks, and months," Dehecq predicts.

On the other hand, Aventis Chairman Igor Landau has recommended that the offer be spurned. The bid, only 3.6% more than the last closing price of Aventis' shares, "offers inferior value compared to the achievement of the current stand-alone strategy."

To convince shareholders that its research pipeline does not need help, Aventis has moved its annual R&D briefing to analysts up from May to this week. And the company argues that the deal with Sanofi would threaten 10,000 to 12,000 jobs--including a large number in France.

Both firms have, up to now, wanted to remain independent. But Sanofi's two major shareholders--oil company Total, through its acquisition of Elf Aquitaine, the former parent of Sanofi; and cosmetics firm L'Oréal, the former parent of Synthélabo--have indicated they want to bow out by the end of this year. That would leave Sanofi vulnerable to other acquisitive firms, particularly those based outside France.

Hence, with what appears to be the tacit approval of the French government, the firm has launched its bid for Aventis, with the goal of building a French pharmaceuticals powerhouse. That goal, in turn, infuriates the German shareholders in Aventis, a holding that reflects the Hoechst interests that combined with France's Rhône-Poulenc in 1999 to form the Franco-German firm, headquartered in Strasbourg, France.

Kuwait Petroleum Corp., the largest single shareholder in Aventis through its former holding in Hoechst, already has rejected the bid.