Sanofi, Aventis Merger May Be Close
Thursday January 9, 10:08 am ET
By Ben Hirschler, European Pharmaceuticals Correspondent
LONDON (Reuters) - A merger between French drug firms Sanofi-Synthelabo (Paris:SASY.PA - News) and Aventis SA (Paris:AVEP.PA - News) may only be a matter of time, analysts and bankers believe, after Sanofi's chief declared himself open to a tie-up "one day."
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Combining the two groups would produce a French champion worth some $85 billion, capable of fighting its corner in a consolidating drugs industry dominated by giants like Pfizer Inc (NYSE:PFE - News) of the U.S. and Britain's GlaxoSmithKline Plc (London:GSK.L - News).
"By merging France's two largest companies you would have a French pharma group that is able to compete globally on an effective basis," said Eugene Benson, analyst at independent consultancy Wood Mackenzie in Edinburgh.
"But there would inevitably be questions about cost savings, given that job cuts are difficult to make in France."
Sanofi Chief Executive Jean-Francois Dehecq kindled speculation of a deal on Thursday by talking publicly about a merger in a interview published in French daily Le Figaro.
"We will perhaps do something one day with Aventis. But I'm not sure the moment is right yet regarding the market," he said.
Dehecq's willingness to speak openly on the subject suggests the two firms are not currently in active discussions, but analysts saw it as a signal of future direction.
KEY SHAREHOLDERS
"I think there is a degree of inevitably about these two companies coming together," said one London-based analyst close to Sanofi.
"Dehecq retires in 2004 and he has a major outstanding issue in the fact that 45 percent of his shareholder base will be unlocked in December 2004. Managing that is his biggest challenge. Clearly, doing a friendly deal reduces the risk of an aggressive bid coming in at the end of 2004."
Both Sanofi, with a market value of 41 billion euros ($43 billion), and Aventis, worth 42 billion, are considered sub-scale in an industry where bringing a new drug to market costs $800 million and marketing costs run into billions.
Sanofi's future has long been overshadowed by its two dominant shareholders, TotalFinaElf (Paris:TOTF.PA - News) and L'Oreal (Paris:OREP.PA - News), who together hold 45 percent of the firm.
Energy group TotalFinaElf has made clear its desire to sell down its remaining 25.8 percent stake but is restricted from reducing its holding below that of cosmetics firm L'Oreal until the end of 2004. L'Oreal currently holds 19.6 percent.
"The options that Sanofi has are limited in that its current shareholders have to agree to any deal, and this makes it a very French set-up," said one healthcare investment banker.
"I think Dehecq's remarks are designed to prepared the public and his own people in a gradual way," he added.
A deal this year or early next could see Dehecq take on the role of chairman of an enlarged group before his retirement, some analysts believe.
The timing might also work well for Aventis which, under new management, is reviewing its strategy after largely completing the disposal of non-core assets with the sale of its agrochemicals business to Bayer AG (XETRA:BAYG.DE - News).
But the key to a deal may lie with L'Oreal which will want to find an acquisition to replace lost income from Sanofi.
"It's a question of L'Oreal buying into it," said one banking source. "The fact that they consolidate part of Sanofi's profit into their own P&L is the key issue for L'Oreal -- if they manage to find something to replace that then that could speed up discussions tremendously."
DRUG PIPELINES
Wood Mackenzie's Benson said combining Sanofi and Aventis had an industrial logic, since Sanofi had a strong pipeline which it was struggling to optimise.
"Arguably, Sanofi has too many products in its pipeline for a company of its size," he said. "Aventis, meanwhile, has a growth issue, like much of big of pharma, in terms of how it gets its hands on new products. Sanofi would appear potentially to have the answer."
Driven by strong growth prospects for anti-clotting drug Plavix, Sanofi has been one of Europe's fastest-growing companies, although worries about Plavix's patent have taken their toll in the last year.
That is reflected in Sanofi's higher rating, with the shares trading on 19.4 times consensus 2003 earnings against 16.4 for Aventis.
(Additional reporting by Emelia Sithole in Paris) ($1=.9524 Euro) |
