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Possible merger would create world's No.1 drug firm

Speculation that French pharmaceutical group Sanofi-Synthelabo is preparing a hostile bid for Aventis intensified Friday with a report that key Sanofi shareholder L'Oreal would hold a board meeting to consider an offer.

A merger or takeover involving Sanofi-Synthelabo and Aventis would create one of the biggest pharmaceutical groups in the world.

Officials at both groups have denied that merger contacts are under way, although a source close to the matter said Aventis had retained two US investment banks to help prepare a defense in the event a bid is made.

Sanofi, responding on Thursday to a German newspaper report that a merger between the two pharmaceutical groups was close to being concluded, insisted it was not negotiating with Aventis. But it also said it continued to consider any deal that could strengthen its business.

The French newspaper Le Figaro reported that the board of cosmetics group L'Oreal, which owns 19.5 percent of Sanofi, would meet Saturday to study a possible bid by Sanofi for Aventis, a French-German company.

Le Figaro, which did not provide sources for its report, affirmed that a big transaction between Sanofi and Aventis was in the wind.

While analysts and investors had taken the view that Sanofi and Aventis might agree to a friendly merger, the newspaper said an unwelcome bid by Sanofi now seemed more likely.

The New York Times, according to a note from brokers Raymond James, said Sanofi could launch a hostile bid for Aventis worth 47.24 billion euros (US$60 billion).

Another broker observed that such an offer would represent a premium of only 5 percent or 6 percent over Aventis's current stock price, given the weakness of the dollar.

In Frankfurt, the Frankfurter Allgemeine Zeitung quoted Aventis chairman Igor Landau as saying his company was not in merger talks with Sanofi, and in Paris he was quoted by the newspaper Le Monde as saying he did not believe that Sanofi would make a takeover bid.

"There's not the slightest contact between us," he told Le Monde in editions to appear today. "There have never been serious discussions on this matter."

He also dismissed the likelihood that a hostile bid was being considered.

"Unsollicited mergers are rare in pharmaceuticals," he said.

Nonetheless, Aventis has engaged two US investment banks, Goldman Sachs and Morgan Stanley, to help prepare its defense in the event of a takeover bid by Sanofi, a source close to matter told reporters.

Officials at Aventis were not immediately available for comment.

A shareholder agreement between L'Oreal and French oil group Total in Sanofi expires on Dec. 2. Total owns 24.4 percent of Sanofi but has indicated it would like to sell the holding because pharmaceuticals are not central to its business.

L'Oreal declined to comment on the report that its board would meet, and so did the Swiss group Nestle, which holds three of 14 seats on the board of L'Oreal. Nestle controls 26.3 percent of L'Oreal.

Sanofi shares were unchanged from Thursday at 53.20 euros in late-day trade Friday after falling sharply earlier in the day, while those of Aventis had gained 2.12 percent to 57.80 euros.

"It's always the predator who falls and the target who rises," noted one Paris trader.

Another broker commented: "Some people think that this is a good time for Sanofi to acquire Aventis by paying in shares since the capitalization of both groups is roughly at the same level."

"As no one is denying a scenario in which an offer would be made, while insisting that no negotiations are under way, investors are betting on a hostile bid," the broker said.
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