A flurry of colorful comments and rumors of white knights punctuated the news surrounding
this week as the company continued its attack on the Jan. 26 unsolicited bid by
. But after all the comments and speculation have subsided, the deal will probably remain an affair between the two giant European drugmakers.
"Come on Sanofi -- Time to Sweeten the Bid," said the headline of a Thursday research report by Tim Anderson of Prudential Equity Group. "As much as management may resist, the likelihood of a merger ultimately rests with Aventis' shareholders, and we continue to feel that a sweetened bid by Sanofi-Synthelabo will get the deal closed."
Anderson has a neutral-weight rating on Aventis, but doesn't follow Sanofi-Synthelabo. (He doesn't own shares in either company, nor does his firm have investment banking relationships with either company.)
Sanofi-Synthelabo offered a mixture of stock and cash for its larger rival. The deal was initially valued at about 47.8 billion euro, or approximately $60 billion.
Aventis had sales of 14.7 billion euro for the 12 months ended Sept. 30, 2003, making it the world's seventh-largest drug company, according to IMS Health. Sanofi-Synthelabo, which ranks 15th, had sales of 6.9 billion euro. Aventis also had more than triple its competitor's revenue in the U.S. -- 6.2 billion euro vs. 1.8 billion euro.
Anderson added that Aventis "actually built a (mostly) believable case" for it being worth more than its competitor's bid, which, he said, was only 4% above Aventis' share price on Jan. 23, the last trading day before the bid was announced. The bid was 15% above the average share price of Aventis during the month before the hostile offer was made.
Another supporter of Strasbourg-based Aventis eventually agreeing to a marriage with Paris-based Sanofi-Synthelabo is Catherine J. Arnold of Bernstein Research.
"Sanofi-Sythelabo has the best odds at prevailing in a merger with Aventis," said Arnold in a Feb. 4 report to clients. Having evaluated other possible bidders, she concluded: "We believe that cost synergies promoted by an all-French deal, as well as the potential revenue synergies in Sanofi utilizing Aventis' U.S. infrastructure, makes the two the most natural combination."
The specter of white knights emerged soon after Aventis immediately rejected Sanofi-Synthelabo's offer, culminating Thursday with Aventis Chairman Igor Landau excoriating his competitor for a "hostile bid
that is a cheap attempt to transfer their risks for our shareholders. It is very clear: they need us
but we don't need them."
Even before Landau's remarks accompanying the Thursday release of Aventis' 2003 earnings report, people began speculating about white knights. Last Friday, for example,
The Wall Street Journal
said Swiss drug giant
had hired investment bankers to ponder a bid. On Monday, the
floated the names of Novartis,
Johnson & Johnson
as possible suitors for Aventis.
That prompted Arnold to look at these suspects, as well as some others including
Procter & Gamble
She likes the Aventis and Sanofi-Synthelabo merger for three main reasons: it provides more cost savings than other possible deals; Aventis' U.S. presence offers a strong selling point for Sanofi-Synthelabo but doesn't provide much of a boost for the white knights; and the "unambiguous support" by the French government will play a key role in closing the deal.
"Pharmaceuticals players are reluctant to irk the French government since it, like other governments, chooses drug reimbursement rates and affects the speed with which products gain approval," Arnold explained.
Here's a summary of Arnold's reasons why other suitors might not work as well with Aventis.
She believes this Swiss giant would rather buy another Swiss drug giant,
. The two companies have complimentary products in several areas, but acquiring Aventis would make it "very disruptive" for Novartis to pursue Roche in the next five years. Novartis already owns one-third of Roche's shares; Roche says it wishes to remain independent.
This company wouldn't solve its research pipeline by acquiring Aventis, whose pipeline "is less robust than many industry peers." Acquiring Aventis would cause dilution for Glaxo shareholders -- more so than for other white knights.
The drug giant is still digesting its 2003 purchase of Pharmacia. Another megadeal "could cause organizational and cultural strain."
Johnson & Johnson:
On the plus side, J&J and Aventis would have complementary products in treatments for cancer, diabetes and infections, and even though cost savings would come "in the early years" of a merger. But on the minus side, Arnold worries that the weakness of the dollar versus the euro limits the potential cash component of any transaction which could affect shareholder support.
Other U.S. rivals:
Arnold said the dollar's weakness vs. the euro and the possibility of French government resistance are crucial reasons to discount other U.S. suitors. In addition, Bristol-Myers Squibb is still trying to climb out of a slump of several years; Procter & Gamble would have to make a significant shift in its corporate strategy to swallow an international drug company; and Abbott might have to divest certain anti-infective drugs to secure approval from government regulators.
Arnold rates Aventis as market perform; she gives Sanofi-Synthelabo an outperform rating. She doesn't own shares, and her firm doesn't have any investment banking relationship with any of the companies cited in this story.
American depositary receipts of both companies trade on the
New York Stock Exchange
. When the deal was announced, Aventis' U.S. shares rose only $2.10 to $75.10. But the stock had been creeping up steadily from $64.76 on Jan. 12. In midafternoon Friday trading, the shares were at $78.45.
Sanofi dropped to $34.30 on Jan. 26, the day the deal was announced, from the $37.01 closing price for the previous trading day. In midafternoon trading Friday, the shares were at $36.70.