By ANITA RAGHAVAN, JOHN CARREYROU and GAUTAM NAIK Staff Reporters of THE WALL STREET JOURNAL April 26, 2004
In a dramatic climax to a bitter takeover battle that laid bare the large role still played by economic nationalism in Europe, France's largest drug maker, Aventis SA, yesterday agreed to be swallowed by its smaller rival, Sanofi-Synthelabo SA, for about €55.2 billion ($65.34 billion) in cash and stock, say people familiar with the situation.
Resorting to behind-the-scenes arm-twisting of Sanofi, along with public and private warnings to back off directed at rival suitor Novartis AG of Switzerland, the French government succeeded last night in producing what it had long desired: a French national champion in a strategically important industry, the fast-growing and highly competitive drug business.
With Aventis succumbing to Sanofi's sweetened offer, the combination of the two will form the world's third-largest pharmaceuticals company, behind Pfizer Inc. and GlaxoSmithKline PLC, with a market capitalization of around €90 billion and a stable of leading drugs such as Sanofi's stroke-prevention treatment Plavix, sleeping pill Ambien and cancer therapy Eloxatin. The new company would also boast Aventis's allergy pill Allegra, anti-blood-clotting drug Lovenox and cancer medicine Taxotere.
Important as its impact will be on the global pharmaceutical industry, the Aventis drama will be equally remembered for its political implications, particularly in the new Europe. From the start, the battle for Aventis was as much about France's desire to create a home-grown national champion in the pharmaceutical industry as it was about shareholder value and business sense. The French government pushed to make Sanofi and Aventis come together, as it did four years ago when it backed the all-French mergers that created Total SA, the world's fourth-largest oil company, and BNP Paribas SA, the biggest bank among the countries that have adopted the euro.
Before Sanofi even unveiled its original bid in late January, the French finance minister called it "positive" because it would enable France to create a "national champion" -- a huge company in what the country deems a strategic industry able to compete world-wide with U.S. giants.
When it became clear that Aventis would fight Sanofi's hostile bid tooth and nail and seek a white-knight offer from Novartis, French officials placed phone calls to executives at the Swiss company on at least three occasions warning that Novartis should stay away.
France's intervention in the takeover battle, which runs counter to the free-market principles espoused by the European Union, comes as the four-decade-old EU is expanding to include 10 new members, ranging from Malta to Poland. Together with Germany, France has been the EU's founding father and its biggest advocate. Yet, in recent years, it has broken the union's economic rules more than once, giving state aid to ailing French companies, letting its budget deficit grow and thus contravening a pact that underpins the euro, and getting involved in takeover battles.
Afraid that Aventis, based in Strasbourg, France, would fall into Swiss hands, the French government had leaned on Sanofi Chief Executive Jean-Francois Dehecq in recent days to raise Sanofi's bid to improve the chances of an all-French deal.
The higher bid was accepted after Aventis's Chief Executive Igor Landau and Sanofi's Mr. Dehecq met Friday under pressure from French Finance Minister Nicolas Sarkozy, according to people familiar with the matter. It was the first time the two men, who have been waging a war of words for three months, met face to face since Sanofi unleashed its hostile takeover.
Mr. Landau will resign his executive duties at the company with a golden parachute valued at €24 million, but may retain a seat on the merged company's board, according to a person familiar with the arrangement. Mr. Dehecq will become head of the new company.
The sudden finish to the Aventis takeover battle came after a surprise no-show by Swiss drug-maker Novartis. Novartis failed to put in a bid for Aventis just a few days after announcing that it was prepared to enter into merger negotiations with France's biggest drug maker.
Novartis said on Sunday it decided to break off merger negotiations with Aventis and to not submit a bid because of the "strong intervention of the French government."
While French authorities last night were congratulating Sanofi and Aventis on their planned marriage, some investors have long thought that France's approach could hurt it in the long term. France argued that Aventis's vaccines were crucial to its defense against potential bioterrorism -- an argument that the European Commission has said would be hard to prove and that investors have dismissed as an excuse to mask protectionism.
"I think ultimately the victim is the French economy," says Steven Cohen, chief investment officer at Kellner DiLeo Cohen & Co., a $500 million New York-based hedge fund that owns Aventis shares. "There is no better way to discourage investment in your economy" than to deter foreign companies from bidding for French companies.
Even as Aventis's board was meeting yesterday, French ministers were talking up the merits of a Sanofi-Aventis tie-up. Speaking on Europe-1 radio, Health Minister Philippe Douste-Blazy said he was hoping for a "positive response" from the Aventis board, presented with the opportunity of a hook-up with Sanofi that would be a "very good thing" for French industry. Any other outcome would leave Sanofi vulnerable to a takeover, the minister warned. "If it doesn't buy another company, a foreign bidder will come along," he said.
Under its agreement with Aventis, Sanofi will offer 0.8333 Sanofi share and €20 a share in cash, valuing the company at €69 a share in cash and stock, based on Sanofi's average closing stock price in the month before rumors of the deal leaked earlier this year, say people familiar with the situation. However, based on Sanofi's closing stock price Friday of €55.95, the deal values Aventis at €66.6 a share in cash and stock. Both values are higher than Sanofi's original offer in January that valued the company at €60.43 a share in cash and stock. The combined company will have a 17-member board with nine members from the Sanofi side, including Mr. Dehecq, and eight from the Aventis side.
The decision to accept the Sanofi offer was not unanimous. Kuwait Petroleum Corp., which is Aventis's single largest shareholder, was one of the parties that abstained, say people familiar with the situation.
The takeover battle for Aventis could burnish the reputation of Novartis chief Daniel Vasella as a tough pharmaceutical deal-maker who is willing to walk away from transactions when the apparent price becomes too high.
Still, the outcome leaves Novartis with a dilemma. The company has made no secret of its desire to grow, especially in the U.S. market, a region where an Aventis acquisition would have helped significantly. But the potential assets it could acquire now are few and far between. Novartis has been stymied in its efforts to take over Swiss rival Roche Holding AG and it is sitting on a large hoard of billions of dollars in cash. Analysts say reinvesting such cash doesn't always yield the kind of return a fast-growing pharmaceutical company such as Novartis would like, because of declining productivity in the drug industry.
Novartis may fall back now on licensing drugs from other companies as part of its strategy to keep growing. <<
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