Novartis raises its stake in rival drugs firm Roche

Swiss pharmaceutical company Novartis yesterday stepped up its challenge to the independence of rival Roche, revealing it had spent £2.1bn raising its stake in the company which invented valium tranquillisers by more than 50%.

Daniel Vasella, Novartis's acquisitive chief executive, is known to be pushing for a merger of the two businesses to create a Swiss drugs giant of about the same size as GlaxoSmithKline.

However, Mr Vasella's ambitions are being blocked by the Hoffman and Oeri families which together control just over half of Roche voting shares. Together with the Roche board, the families have firmly ruled out a large scale merger.

Nevertheless Novartis yesterday revealed it had notched up the pressure on Roche over the past year by quietly increasing its stake in the family-controlled firm to 32.7% - just short of the one-third holding that would give an effective veto on major strategic decisions.

A spokesman for Roche, which is based just minutes away from Novartis headquarters in Basle, said the increased stake had "absolutely no consequences".

Criticising the pharmaceutical industries rapid consolidation over the past decade, which has passed Roche by, he added: "The founding families and the board want to focus on speed and innovation.

"We think you need a certain size to do research and development all over the world, but once you have that size that is enough. We don't think a mega merger would add value for shareholders."

Many analysts believe a marriage of the two Swiss firms would be a perfect match, benefiting from Novartis's strength in the US, and Roche's strong Japanese presence.

Some note that Roche, which was founded in 1895 and was once the world's largest pharmaceutical firm, now has a promising pipeline of drugs in development, particularly treatments for hepatitis and Aids. They suggest two controlling families may be blocking a sale until the benefits of these products has been realised.

Novartis is also believed to be building a one-third stake - which would trigger a mandatory offer - as a block against rival bids from global players outside Switzerland.