The merger would create one of the world's largest pharmaceuticals companies in terms of sales, surpassing even the UK's Glaxo Wellcome.

However, beyond confirming the talks both companies refused to say anything except that "no guarantee can be made as to the outcome of the current discussions".

Rhône-Poulenc and Hoechst want to plot their future course together

A Hoechst spokesman conceded that "the talks could still fail."

Industry sources expect a final announcement early next week.

The move could give both companies the critical mass to survive on the world's increasingly competitive pharmaceutical markets.

The wrong partner?

However, most analysts are sceptical about the deal and suggest that Hoechst may have found the wrong partner.

Christa Baehr of BHF-Bank said a merger with Rhône-Poulenc was "not the ideal solution". Neither company had a good "product pipeline" of promising new drugs and both were heavily in debt.

Christoph Dolleschal of Independent Research agreed: "Rhône-Poulenc is very much at the bottom of the league of international drug makers and Hoechst should have sought out an American partner to increase its foothold in the United States."

Observers suggest that both companies are still arguing over who will be in charge of the new venture. According to the Wall Street Journal Europe, the pharmaceutical activities could be headed by a Hoechst executive, while Rhône-Poulenc would look after agrochemicals.

But Hoechst's ventures are more valuable than that of its prospective partner, and it will be tricky to find an answer to the question who will be ultimately in charge.

Two other mega-mergers in the pharmaceutical industry collapsed this year over the question of leadership - Glaxo's proposed merger with rival SmithKline Beecham, and American Home Products' tie-up with life sciences company Monsanto.

Industrial giants

Last week Hoechst spun off its industrial activities into a separately listed unit, Celanese. Earlier in the year, the French company also created a separate chemicals company, Rhodia.

The German firm has had a difficult time lately, with a massive drive to modernise and streamline the company failing to produce any result.

Ten years ago, Hoechst was one of the leading drug makers of the world, but experts agree that it has recently lost its way.

Rhône-Poulenc employs 68,000 people in 160 countries world wide and in 1997 had sales of $15bn.

Hoechst is even bigger, with 120,000 employees and worldwide sales of $30.5bn.

Both companies have been trying to move away from reliance on heavy chemicals, a high-volume, low profit business.

Like the UK's ICI, which split off its pharmaceutical division Zeneca a number of years ago, they hope that a separate pharmaceuticals business will be more highly rated by the market.