ZURICH—Novartis AG's (NVS) proposal for a merger with Aventis SA (AVE) takes into account the concerns of the French government, the Swiss pharmaceutical company's Chief Financial Officer Raymond Breu said Thursday.
Novartis said earlier Thursday that it has accepted Aventis AG (AVE)'s invitation to negotiate conditions for a potential merger.
The financial chief said that no guarantee can be given that an agreement with Aventis will be reached.
Franco-German pharmaceutical company Aventis faces a hostile takeover bid from smaller French rival Sanofi-Synthelabo SA (SNY). To fend off the hostile bid, Aventis has invited Novartis to open merger talks.
Breu said: "A combination with Aventis has a very convincing industrial logic, it creates value and it addresses the legitimate concerns of the French government."
He declined to specify the parts of the merger proposal that address French concerns.
Novartis has previously said that it would enter merger talks only if Aventis invited it, and if the French government adopted a neutral stance towards a merger of Swiss Novartis with Franco-German Aventis.
So far, the French government has sent mixed signals on its views, but the prevailing perception is that Prime Minister Jean-Pierre Raffarin would prefer a French combination.
FT.COM—Novartis, the Swiss pharmaceuticals group, said it would begin merger talks with France's Aventis, which faces a $53.2 billion hostile takeover bid from Sanofi-Synthélabo.
"The board of directors of Novartis has decided to accept the offer of the Aventis supervisory board to negotiate conditions for the potential business combination", the company said.
"No assurances can be given that an agreement can be reached", it added.
The move increases the pressure on Sanofi, Aventis's smaller Franco-German rival, to raise its bid for Novartis, though analysts have highlighted that the Swiss group has the potential to offer more because it is larger and can wring out more cost savings.
Shares in Novartis were 3 per cent lower at SFr55.55 in early afternoon trade in Zurich on Thursday. Aventis shares in Paris were up 4 per cent to €65.30.
The Swiss group's long-awaited decision comes against the backdrop of strong French government support for Sanofi's bid which, if successful, would create a national champion in the pharmaceuticals sector.
Novartis had said it would not bid unless the French government remained neutral, a condition a senior minister described this week as "impossible" to fulfil.
Jean-Pierre Raffarin, prime minister, has invoked a law protecting national security and public health to say that Aventis’s vaccines must be guaranteed for France. The government could seek to block the merger in the courts, though it could also put pressure on the merged company by reducing the fees it pays for drugs.
However, independent lawyers say the legal basis for thwarting a merger is unclear and could be challenged under European Union legislation.
But some Aventis shareholders said that Novartis was encouraged recently by comments from Patrick Devedjian, French industry minister, who said that the government would remain legally neutral.
Aventis said on Thursday it welcomed Novartis's decision to enter into merger talks. Aventis group has been discreetly lobbying politicians to drop their opposition to the merger.
Sanofi, whose announcement of a 12 per cent rise in first-quarter sales was overshadowed by Novartis's announcement, declined to comment on Thursday.
The prospect of Novartis winning the battle for Aventis would leave Sanofi highly vulnerable to a takeover itself. Sanofi has done little to hide the fact that its bid for Aventis was a defensive reaction to avoid a foreign company such as GlaxoSmithKline of the UK or Pfizer of the US buying it. If the French government stands aside to let Novartis bid for Aventis it would open the possibility that a foreign bid for Sanofi would be accepted, too.
Novartis also released results on Thursday, reporting a 22 per cent rise in first-quarter net income to $1.29bn, boosted by an increase in prescription medicines. A weakening dollar helped earnings. Sales rose 8 per cent in local currencies to $6.6bn.
Novartis reiterated that it expected full-year operating and net profits to exceed last year's level.
Daniel Vasella, chairman said: "Barring unforeseen events, we anticipate delivering record full-year operating and net income."
The company expects revenue to grow faster than the market, which is expected to expand around 6-7 per cent this year, in the high single-digit range in local currencies, driven by key pharmaceutical products.
Diovan, a treatment for hypertension, remained its top-selling drug with a 30 per cent increase in sales to $733m.
Novartis said brisk growth in research and development spending should ease this year.
source: http://query.nytimes.com/mem/tnt.html?tntget=2004/04/22/business/22FT-DRUG.html&tntemail0=&pagewanted=print&position= 23apr04
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