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Biotech / Medical : Monsanto Co. -- Ignore unavailable to you. Want to Upgrade?

To: Anthony Wong who wrote (617)	11/25/1998 3:37:00 PM
From: Anthony Wong	Respond to of 2539

11/25 13:03 FOCUS-Hoechst, Rhone plan drugs/agrochemical giant (Adds closing share price and comment on Schering) By Matt Karnitschnig FRANKFURT, Nov 25 (Reuters) - Germany's Hoechst AG <HOEG.F> and France's Rhone-Poulenc SA <RHON.PA> ended weeks of speculation on Wednesday by confirming they were discussing a merger to create the world's largest drugs and agrochemicals manufacturer. The two companies said in a brief statement that they were "negotiating a potential life sciences merger" that analysts estimated would be worth at least 60 billion marks ($35 billion). There have been rumours of talks since October and sources close to the negotiations told Reuters that they were likely to conclude by the beginning of December, although both companies warned there was no guarantee of a successful completion. The new company would supplant Switzerland's Novartis AG <NOVZn.S> as the world's largest 'life sciences' company, a term used to describe makers of pharmaceuticals and agrochemicals. It would also create the world's second-largest drug maker with sales of about $13 billion in the $240 billion industry. That would place it behind industry leader Merck & Co <MRK.N>. Hoechst and Rhone have both sought to move away from their traditional industrial chemicals activities towards the more lucrative life sciences. But both have lagged industry leaders like Merck and Glaxo Wellcome Plc <GLXO.L> in the race to create blockbuster drugs, and investors said a merger might help them catch up. "There are better solutions than this, but one has to go with what's doable," said Michael Trauth, a fund manager at Baden Wuerttembergische Kapitalanlagegesellschaft mbH in Stuttgart, which holds 1.5 billion marks in German equities. Hoechst shares closed down 4.29 percent at 75 marks in afternoon trade and Rhone fell 1.55 percent to 286 francs. Investors said they were taking profits after recent specualtion of a tie-up drove shares higher. Hoechst's drug division is primarily known for its hypertension and vascular disorder treatments such as Cardizem, while Rhone has traditionally been strong in vaccines. The new company, including Hoechst's AgrEvo joint venture and Rhone's Agro unit, would account for $4.55 billion of sales in a global market worth $50 billion. Schering, which holds 40 percent of Agrevo, said it was involved in the talks, but would give no further details. Analysts said Schering could be a winner from a tie-up between Hoechst and Rhone and might use the opportunity to withdraw from AgrEvo. Its share rose 2.46 percent to 208 marks. "There's going to be a lot of questions about what happens to Agrevo," HypoVereinsbank analyst Christiane Dienhart said. While a merger might help Hoechst and Rhone cut costs by as much as $750 million annually and propel them from the second tier of drug makers into the first by sales, analysts say a marriage would be fraught with difficulties. They point to the companies' high debt burden, as both have liabilities of about 15 billion marks, as well as the dearth of blockbuster drugs in either group's pharmaceutical pipeline, and their modest presence in the United States. But the biggest difficulty might come in integrating the companies' cultures. Similar problems have recently scuppered two high-profile mergers -- one between American Home Products Corp <AHP.N> and Monsanto Co <MTC.N> and another between Smith Kline Beecham <SB.L> and Glaxo. "We have a laundry list of problems, whatever the construction," HypoVereinsbank's Dienhart said. Analysts say Hoechst, the world's ninth-largest drug maker, is still trying to digest its acquisitions of Marion Merrell Dow and Roussel Uclaf, which it has folded into its own pharmaceuticals operations to form Hoechst Marion Roussel (HMR) over the last couple of years. Operating margins at the two, which have also trailed others in the industry, are cited as another challenge. Despite the drawbacks, some analysts said they supported the strategy because it would improve both sides' overall positions in drugs and agrochemicals. "These two groups have a goal to grow in size. Will they do that quicker if they join? The answer is 'yes'," said Marck Becker, an analyst at J.P. Morgan in London. Sources said Rhone's contribution to the new group would comprise all its activities bar Rhodia's speciality chemicals unit in which it holds 70 percent. Hoechst's contribution would likewise consist of its life-science holdings but not its 45 percent share in Clariant, a speciality chemicals group, or its other remaining chemical assets. Rhone has been advised by Goldman Sachs & Co and Rothschild Inc on the deal and Hoechst by Lazard Freres & Co, industry sources said. (With additional reporting by Marcel Michelson in Paris)