Novartis Plans to Face Down French Objection

Novartis, the Swiss drugs producer, plans to brush aside French government hostility and ride to the rescue of Aventis, which is fighting to fend off a takeover bid from its smaller rival, Sanofi.

The two firms will open takeover negotiations immediately, Novartis said yesterday, despite the continued resistance of Paris, which would prefer an all-French merger. The Aventis share price jumped more than 4% on the news.

Sanofi's chairman-chief executive, Jean-François Dehecq, has won the support of the French prime minister, Jean-Pierre Raffarin, for his plan to build a Paris-based pharmaceuticals group. He launched an audacious £30bn bid for Aventis in January, saying he wanted to create a "beautiful European company".

But with deeper pockets and a slicker marketing operation, Novartis is regarded as a formidable "white knight" bidder. A Novartis-Aventis combination would form the world's second-biggest drugs firm, behind Pfizer, and have a drugs portfolio spanning cancer, heart disease and diabetes.

"A combination with Aventis has a very convincing industrial logic," said finance director Raymond Breu yesterday. He added that any bid would "take into consideration all the legitimate concerns of the French government regarding research investment, employment and access to vaccines".

The French premier has linked the ownership of Aventis to France's need to secure vaccines to protect itself from biological attack, and hinted that he might try to block a foreign bidder. But Novartis appears to have decided to call his bluff.

Sanofi, which announced a 12% rise in first-quarter sales yesterday, said it understood the Paris concerns. "The government feels that pharmaceutical products are a sensitive issue for all states, and this even more if vaccines are concerned," said Hanspeter Spek, its executive vice-president. "Governments continue to have opinions on what happens in the industrial landscape." Sanofi is widely seen as having launched its surprise bid in January to avoid being gobbled up itself by a larger player such as Pfizer. If Novartis succeeds in buying Aventis, both France's main drugs companies could fall into foreign ownership.

Finance director Marie-Helene Laimay said Sanofi was still "very confident" of sticking to its plan to complete a takeover of Aventis by the end of June, and denied that it will inevitably have to raise the price if Novartis makes a formal bid.

"We believe that we have a global project. We will look carefully at the evolution of the share prices of Aventis and Sanofi," she said.

An adviser to Sanofi added last night that it could stick to its deal timetable even if it was forced to sweeten its bid - while Novartis could face a lengthy battle to convince the competition authorities to pass its bid. It owns more than 20% of its Basel neighbour Roche, as well as holding a stake in the US vaccines firm Chiron.

As well as the government, Novartis faces tough opposition to a cross-border merger from French trade unions. Nine unions sent a letter to finance minister Nicolas Sarkozy yesterday, saying they were "unquestionably opposed" to such a deal, and would "do anything in their power to make this fail". Both the Sanofi and Novartis camps are keen to claim that their "projects" would lead to fewer redundancies. If Novartis wins the bid battle, it plans to float off some Aventis products into a separate company.

Aventis has launched a series of legal missiles against Sanofi since January, including cases in the French and US courts. The French market regulator, the AMF, is expected to rule today on whether Aventis will be allowed to issue warrants to its shareholders, to indemnify them if Sanofi bought the company and subsequently lost patent protection on its top-selling heart drug, Plavix.