Europe South Asia Asia Pacific Americas Middle East Africa BBC Homepage World Service Education



Front Page

World

UK

UK Politics

Business

Sci/Tech

Health

Education

Sport

Entertainment

Talking Point
On Air
Feedback
Low Graphics
Help

Tuesday, December 1, 1998 Published at 16:05 GMT


Business: The Company File

Europe's blockbuster drug deal

Hoechst

European pharmaceutical giants Hoechst of Germany and France's Rhône-Poulenc have confirmed they are creating the world's largest pharmaceuticals and agrochemicals group.

The companies are forming a 50-50 joint venture combining their life sciences businesses under the name Aventis, as a precursor to a full merger of the two group's within three years.

The full merger will draw in the huge chemicals assets of both companies to create a drug and chemical giant on the world stage.


[ image: Is the chemistry right?]
Is the chemistry right?
Aventis will be based near the Franco-German border in Strasbourg and will enjoy annual sales of around $20bn.

The two companies gave no indication of how many jobs would be lost as a result of the deal.

"We want to form a new company with common European roots and a worldwide presence in order to take part in the significant growth opportunities in the life sciences," Hoechst chief executive Juergen Dormann and Rhone chairman Jean-Rene Fourtou said in a joint statement.

"Going it alone would put us at risk of losing momentum and falling behind in rapidly changing and consolidating industry," Mr Dormann added at a news conference.

"We see this merger as a window of opportunity that we want to take advantage of," he said.


[ image: Juergen Dormann, chief executive of Hoechst]
Juergen Dormann, chief executive of Hoechst
Mr Dormann will head the new group as chairman while Mr Fourtou will be vice chairman.

The companies expect to make savings of $1.2bn a year when the tie-up is complete.

A significant proportion of those savings will come from the lower taxes the combined group will have to pay by having its head offices in France.

Aventis' choice of location is bound to cause further controversy amid growing calls for harmonisation of tax regimes across Europe.

The merger has partly been driven by the need for economies of scale in the development of new drugs, and the push by European health services to keep down the price of drugs.

Analysts also point out that the two groups have lagged behind their US rivals and question marks have been raised over their drug pipelines.

Big mistake?

European stock markets reacted warily to the deal, with shares in both companies falling sharply on Tuesday.

Most analysts are sceptical about the joint venture and suggest that Hoechst may have found the wrong partner.


[ image: Rhône-Poulenc's Paris headquarters]
Rhône-Poulenc's Paris headquarters
They say the deal will will do little to allow the two to lift market share in the large and lucrative US market where there combined penetration will be about 3%.

Christian Faitz, analyst at Banque Nationale de Paris in Frankfurt: "We don't think much of the merger, nothing great is going to come from putting two sick companies together."

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.

Culture clash

Cultural differences are also seen as an obstacle, both on national and corporate management levels.

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

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.





Advanced options | Search tips




Back to top | BBC News Home | BBC Homepage | ©


The Company File Contents


Relevant Stories

29 Nov 98 | The Company File
Exxon and Mobil set for record merger

01 Dec 98 | The Company File
D-Day for slick mergers

30 Nov 98 | The Company File
Deutsche, BT create world's largest bank

25 Nov 98 | The Company File
Europe's drugs mega merger





Internet Links


Aventis

Hoechst

Rhône-Poulenc


The BBC is not responsible for the content of external internet sites.




In this section

Microsoft trial mediator welcomed

Vodafone takeover battle heats up

Christmas turkey strike vote

NatWest bid timetable frozen

France faces EU action over electricity

Pace enters US cable heartland

Mannesmann fights back

Storehouse splits up Mothercare and Bhs

The rapid rise of Vodafone

The hidden shopping bills

Europe's top net stock

Safeway faces cash demand probe

Mitchell intervenes to help shipyard

New factory creates 500 jobs

Drugs company announces 300 jobs

BT speeds internet access

ICL creates 1,000 UK jobs

National Power splits in two

NTT to slash workforce

Scoot links up with Vivendi

New freedom for Post Office

Insolvent firms to get breathing space

Airtours profits jump 12%

Freeserve shares surge

LVMH buys UK auction house

Rover - a car firm's troubles