Aventis Scorns 48bn Euro Bid From Drugs Rival

Europe's pharmaceutical industry found itself caught up a hostile takeover bid yesterday when France's Sanofi launched a €48bn (£30bn) bid for rival Aventis.

The move was quickly dismissed by Strasbourg-based Aventis leaving investors anticipating the prospect that Sanofi will be forced to increase its takeover terms.

One French trade union expressed concern that up to 25,000 jobs - almost a quarter of the combined workforce - could be lost to pay for the €1.6bn annual savings Sanofi is seeking to generate.

Sanofi is offering Aventis shareholders the option to take shares, cash or a mixture of the two but said that it would limit the cash payout to around one-fifth of the total purchase price.

It has secured a €12bn credit facility to help pay for the bid and to refinance Aventis' debt if the takeover succeeds.

The combination of Sanofi and Aventis would create the world's third largest drugs company - after Pfizer and GlaxoSmithKline - and the idea of the creation of a national champion has been welcomed by French finance minister Francis Mer.

Sanofi said yesterday there was a "compelling strategic rationale" behind the move, arguing that it would create a powerful global player with a "large portfolio of high-growth drugs" - including nine that generated sales of more than €500m last year.

Sanofi chairman and chief executive Jean-Francois Dehecq said his group had decided to"act quickly" rather than risk protracted negotiations to win an agreed deal. Sanofi is also under time pressures. Its two leading shareholders Total and L'Oreal have already decided to end a pact that prevents them selling their shares - opening the way for a bid for Sanofi.

Aventis dismissed the offer saying that it undervalued Aventis and "does not take account of the wide range of risks associated with this move".

The offer is pitched at a premium of about 3.6% to Friday's closing price although Sanofi argued yesterday that it was at a 15.2% premium to the average price over the last month.

Analysts calculate that Aventis will have to increase the terms if it is to succeed. "This is a warning shot across the bows. This is not necessarily the final offer," according to Marc Booty at Commerzbank.

Denise Anderson, an analyst at Julius Baer said: "Previous deals (in the sector) have been done at higher premiums. We think Aventis shareholders will expect at least a 20% premium and possibly a 30% upside."

Last night Aventis shares closed up almost 3% on the day, Sanofi shares were down more than 5%.

Sanofi's bid to is likely to provide fresh impetus to the consolidation of the pharmaceutical industry as companies battle to cope with the escalating costs of developing drugs.

Back in1996 Swiss rivals Sandoz and Ciba-Geigy merged in a $27bn deal to form Novartis. Three years later saw the merger of Astra and Zeneca; Aventis was born of the combination of Rhone-Poulenc and Hoechst while Pfizer trumped American Home Products' bid for Warner Lambert in a $114bn deal.

The following year came Glaxo Wellcome's $74bn merger with SmithKline while last year Pfizer cemented its number one slot with a $60bn bid for Pharmacia.

"The growing cost of research - it takes 12 years and £500m on average to bring a single new medicine to the market - represent an enormous commitment and companies are finding it increasingly difficult to fund that sort of commitment," said Richard Ley at the Association of the British Pharmaceutical Industry.

"One way round that is to merge with another company."

Sanofi's move saw shares in Switzerland's Roche, where Novartis has a 33% holding, rise by 4.4%. Germany's Schering - also regarded as a possible bid target - saw its stock rise 2%.