Aventis Braced for €60bn Bid From Its Smaller Rival

Sanofi, the French pharmaceuticals group, is poised to launch a €60bn (£40bn) takeover bid for its bigger rival Aventis in a move that could trigger a new round of consolidation in the sector.

Sanofi directors were said to have met in Paris last night to hammer out details of an offer that could come as early as today. If a bid succeeded it would create a company with a stock market value of more than €100m. The combined business would rank in the world's top three drugs companies.

The idea of a merger has already won the approval of the French government, which welcomes the idea of a national champion in a high profile industry.

Strasbourg based Aventis - formed by the merger of the drugs businesses of Hoechst and Rhone-Poulenc - is expected to mount a tough defence if Sanofi launches a hostile bid.

However political backing for a deal would make it harder for another pharmaceutical group to launch a white knight bid for Aventis.

"Given the political pressure, Aventis doesn't really have any other place to go," Paul Diggle at Code securities said.

Analysts say that combining Aventis and Sanofi would make sense. It would generate sizeable savings, allow the two companies to combine their development pipelines - where Sanofi's obesity and anti-smoking drug Rimonabant is seen as one of the most promising prospects - and produce a strong player in the crucial US market.

"Sanofi are still on the rung below the true top tier drugs companies and even though they have got good growth rates they still need the fillip of a broader portfolio and greater presence in the US," said Iain Clark at consultancy Wood Mackenzie.

The crucial issue will be price. Aventis is likely to put up a hard fight, arguing that any deal would have to reflect un certainties about the patent on Sanofi's top selling blood thinner, Plavix. Shareholders may also be concerned that France's tough labour laws might mean the deal would lead to a lower level of cost savings than those seen in other drugs mergers.

Analysts are expecting an all paper offer pitched at a modest premium to the Aventis share price of around €57 though a higher offer would make it harder for Aventis to resist.

"If they went for a killer blow you could think of a €70 per share offer or a 35% premium to the price prior to the bid speculation," one analyst said. "If they were to go as high as that, management would be very hard pressed not to accept the bid."

Before it can launch any offer Sanofi will need the backing of its two biggest shareholders, cosmetics group L'Oreal and oil company Total, which hold 44% of the shares.

Both were reported to have been holding meetings over the weekend but neither could be reached for comment. Last November the two companies allowed a shareholder a agreement, that forbade them selling their Sanofi stakes, to lapse.

Total is seen as more likely to back an aggressive move by Sanofi because it does not regard its stake as a core investment. In the past, however, L'Oreal has been considered reluctant to see its near 20% holding diluted.