Novartis To Join Merger Talks with Aventis

Basel-based Novartis said it would begin negotiations with Aventis despite previous reservations about interference by government officials in Paris, who have made clear they would prefer an all-French linkup with Sanofi-Synthelabo. If successful, the merged Novartis-Aventis would create the world's second-largest pharmaceutical firm after the U.S.-based Pfizer.

A spokesman for Aventis, which itself was created from a merger of France's Rhone-Poulenc and Germany's Hoechst in 2000, said the company was pleased by Novartis' willingness to negotiate, but remained cautious about the final outcome of the talks.

"We welcome this decision, [but] no assurances can be given that an agreement can be reached," spokesman Tony Rodham told the Associated Press. Aventis's board invited Novartis to enter talks three weeks ago.

The announcement strengthens Aventis' hand in its attempt to fend off a hostile bid from much smaller French rival Sanofi-Synthelabo, which has offered to pay €45 billion ($53.2 billion) for the company. That encouraged Novartis to get involved, but the Swiss were then put off by comments from French Prime Minister Jean-Pierre Raffarin, who said he would prefer a French-only merger in order to help protect the country's national interests.

"We're not at the endgame here yet," Richard Jarvis, a pharmaceutical analyst at Pictet & Cie in London, told Bloomberg News. "The French government hasn't changed their position and Novartis is keen to try and persuade them. It's not completely in their hands and it isn't just in the hands of Aventis shareholders at present."

Aventis sees risks with Sanofi

However, since Aventis has shown no interest in merging with Sanofi-Synthelabo and the French government would have to justify blocking any deal to the European Union, Novartis now appears ready to risk rankling Paris.

"A combination with Aventis has a very convincing industrial logic. It creates value and it addresses the legitimate concerns of the French government," Novartis Chief Financial Officer Raymond Breu told reporters on Thursday.

Strasbourg-based Aventis has said Novartis would be a much stronger partner than Sanofi, which faces possible patent challenges to some of its more important drugs such as its Plavix blood-thinner.

Although half the size of it's competitor, Sanofi is asking for a 100 percent takeover of Aventis and demanding 50 percent of Aventis shares and voting rights -- a bold move that Sanofi is able to make because of Aventis' currently weaker financial position.

Unions opposed

Novartis would protect Aventis from Sanofi, but the firm's unions are opposed to a merger with the Swiss and on Thursday showed they would not shy away from using concerns about France's national interest to try and hinder a deal.

Bloomberg reported that the unions sent a letter to French Finance Minister Nicolas Sarkozy, saying an Aventis Novartis merger would mean "France would have to give up its independence on products as crucial as vaccines and antibiotics, not to speak of the industrial and research sacrifice.''

Novartis shares were down 2.4 percent to 57.35 Swiss francs (US$43.64) in early trading on the Zurich exchange following the announcement, and Aventis shares rose 2.7 percent to €64.45 (US$76.53) in early Paris trading.