Aventis Moves To Prevent Hostile Takeover

Paris-based drug group Sanofi-Synthelabo on Monday announced a hostile takeover bid for the larger Franco-German pharmaceutical conglomerate Aventis. If successful, the move would create Europe's largest pharmaceutical company and the third largest firm in the world behind the America's Pfizer and Britain's GlaxoSmithKline.

Sanofi's combined stock and cash offer is valued at about €47.8 billion. The French firm is offering five of it's six shares, plus €69 for six Aventis shares. An alternate deal for shareholders promises 35 Sanofi shares for 34 Aventis shares, amounting to €60.43 per share.

Although half the size of it's competitor, Sanofi is asking for a 100 percent takeover of Aventis and demanding 50 percent of Aventis shares and voting rights -- a bold move that Sanofi is able to make because of Aventis' currently weaker financial position.

A small fish with a big market cap

Though Aventis' annual sales of about €20.6 billion eclipse those of Sanofi, which counts about €8 billion a year in revenues, the firms stocks carry a comparable value on the market.

The move had been expected in financial circles for the past several weeks, but Sanofi had denied its intentions until Monday morning, when Sanofi CEO Chairman Jean-Francois Dehecq announced the takeover bid and said that Sanofi would "move quickly."

"A friendly offer, that means it is discussed for a very long time. To make an offer in a public, direct and open manner avoids getting caught up in a slow process which is highly likely to be submitted to all sorts of speculations," Dehecq told reporters.

Aventis spurns offer

Aventis officially rejected Sanofi's offer on Monday, calling the unsolicited bid "unacceptable." Aventis executives are arguing that the company's shares are undervalued and that a hostile bid battle would damage both companies. Analysts told wire services they believed Aventis shareholders would demand a greater premium before accepting any deal.

But Sanofi's Dehecq expressed his confidence to journalists that Aventis would eventually accept a tender. "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," he said.

Government approval expected

Over the weekend, French authorities indicated they would greenlight a Sanofi takeover of Aventis, with French Finance Minister Francis Mer predicting the deal would be "largely positive." The French government, strongly favors the consolidation of the two pharmaceuticals, with the hope that an alliance would create a strong national company to compete with U.S. and British companies.

French Social Affairs Minister Francois Fillon gave a nod of approval to the bid saying he did not believe "the building of a European giant is dangerous for employment." Employment is a particular merger concern, since together Sanofi and Aventis have more than 100,000 employees.

The bid was also greeted by the cosmetics firm L'Oreal and oil giant Total who together own 44 percent of Sanofi. In November L'Oreal and Total agreed not to extend a pact that expires at the end of 2004 that protects Sanofi from predators. This led to Sanofi's aggressive tactics to secure it's financial future and an attempt to avoid ending up in a weak market position like Aventis next year if L'Oreal and Total decide to sell their Sanofi holdings.

Lower costs, more pills

According to statements made by Sanofi executives, the merger would reduce costs and enable a greater amount of the expensive research required to develop new drugs and bring them to market.

"Sanofi-Synthelabo believes that the enhanced scale, financial strength and research and development resources will allow the new group to serve patients worldwide and to enhance shareholder value in ways that are not likely to be achieved by either Sanofi-Sythelabo or Aventis on a stand alone basis," the company said in a statement.

Sanofi said after restructuring costs estimated at around €2 billion, the company expected €1.6 billion euros in annual pretax savings as a result of the merger. The combined group would have projected consolidated pre-tax sales of €25 billion euros.

Aventis stock, created following the 1999 merger of Germany's Hoechst and France's Rhone-Poulenc, has risen sharply in recent weeks following speculation of a merger with Sanofi. Trading in both Sanofi and Aventis shares was suspended Monday until 3 p.m. European Central Time time.