Novartis Misses Out On Another Merger, But Forces Sanofi To Pay More

Novartis is bowing out of the bidding for Aventis after Sanofi agreed to sweeten its offer for the company.

"Following Aventis' decision to engage in discussions with Sanofi, at the strong intervention of the French Government, Novartis decided not to proceed," the company said April 25. "Novartis' decision is final."

Novartis entered into discussions with Aventis April 22 as a potential "white knight" bidder against Sanofi. However, Sanofi responded by raising its bid, and Aventis agreed to the new terms April 25.

Novartis has now been rebuffed in three attempts to find a merger partner since the company was formed in 1996 from the merger of Ciba and Sandoz.

CEO Daniel Vasella is a vocal advocate for the position that there will be additional consolidation in the pharmaceutical industry, but Novartis has not yet been able to close a deal.

Novartis made an unsolicited offer for Searle in 1999, but the company instead merged into Pharmacia (and later Pfizer). Novartis has also acquired a minority stake in its Swiss neighbor Roche, but has so far failed to convince Roche's family ownership to sell its controlling stake.

Sanofi-Aventis will leapfrog Novartis in the global pharmaceutical rankings, and so may increase the pressure on the Swiss company to find a merger partner of its own.

However, Novartis' public avowal of interest in Aventis did help to drive up the price paid by Sanofi, and so could pay some dividends in the long run. Sanofi will have to borrow an additional $8 bil. in cash to close the deal, and also agreed to maintain Aventis' operations in Germany.

Sanofi acknowledged Novartis' role in driving up the bid for Aventis during an April 26 conference call - and suggested that it would not have been comfortable going any higher in its bid for Aventis.

"For weeks now, we are reading and trying to understand what could be the position of the competition, and especially of one competitor, and it's clear that if we don't move, it would be very easy for this competitor to take this position below €70, and at that moment, it would be finished because it would be far too expensive for us to make something more," CEO Jean-Francois Dehecq said.

Sanofi-Aventis will rank as the third largest global pharmaceutical company, trailing number one Pfizer by a large margin but ranking closer to GlaxoSmithKline.

GSK, however, will itself be getting bigger as a result of the merger: the company will acquire Sanofi's antithrombotic franchise at a relatively low cost upon the closing of the Aventis deal (¹ (Also see "GlaxoSmithKline Will Buy Arixtra, Fraxiparine In Event Of Sanofi/Aventis Merger" - Pink Sheet, 13 Apr, 2004.)).

- Michael McCaughan