NEW YORK (CNN/Money) -
France's largest drugmaker Aventis will stay under French control after smaller rival Sanofi-Synthelabo raised its bid to $64.2 billion and turned a hostile bid into a friendly acquisition Monday.
Sanofi-Synthelabo, which had launched a hostile bid for Aventis in January, was pressured to raise its bid by French government officials, who were worried that Aventis would otherwise be bought by Swiss drugmaker Novartis, and that Sanofi-Synthelabo itself could become a takeover target without a deal.
The decision is a snub to Switzerland's Novartis (NVS: Research, Estimates) which had been considering a rival offer but whose approaches were resisted by a French government keen to forge a national pharmaceuticals champion.
French Prime Minister Jean-Pierre Raffarin welcomed the deal, which was clinched after Sanofi (SNY: Research, Estimates) improved its original offer by some 14 percent. But investors worried that Sanofi would struggle with its new debt level, and were also disappointed with the price paid for Aventis. Sanofi shares were off 8.9 percent in early-afternoon Paris trading, while Aventis shares were off 5.6 percent.
"There could be some short-term weakness...but we would use that as a buying opportunity given that we believe in the longer term they have now got what they needed," said Marc Booty, industry analyst at Commerzbank in London.
Aventis shares have recently traded at a substantial premium to Sanofi's original offer as investors bet Novartis would trump it or Sanofi would put more cash on the table.
SG Cowen analyst Kevin Scotcher said that he believes the higher price paid by Sanofi, more than the hostility from French officials, was what kept Novartis on the sideline this time.
"He was willing to deal with French government hostility," said Scotcher about Novartis Chairman and CEO Daniel Vasella. "The price Sanfonis paid may be a full one."
Scotcher said that he didn't expect that this deal would spark other drug companies to make immediate deals in response. Instead he thinks it'll be six to 12 months or more before the next major deal is announced.
"Consolidation is going to continue. It's not a new round or an old round. It's a continuation of what's been going on since late 80's," Scotcher said. "Any company with a market cap of $40 billion or lower can be bought for cash by the big players."
Under the new bid, Sanofi is offering five of its shares for each six Aventis shares held, plus 120 in cash -- equivalent to 66.6 per Aventis share, based on Sanofi's closing stock price Friday.
There is a subsidiary all-cash offer of 68.93, but the cash part will be limited to 29 percent of the total offer. Previously the cash component was capped at 19 percent.
The deal will give Sanofi's CEO Jean-Francois Dehecq, who will run the new company, increased resources in a consolidating pharmaceuticals sector. Only U.S.-based Pfizer (PFE: Research, Estimates) and Britain's GlaxoSmithKline (GSK: Research, Estimates) will have bigger market share.
Aventis' leading drugs are allergy pill Allegra, cancer treatment Taxotere and anti-blood clotting drug Lovenox, while Sanofi's top sellers include anti-stroke medicine Plavix, sleeping pill Ambien and cancer therapy Eloxatin.
"Finally it's done. The government will be happy with this outcome," said Jacques-Antoine Bretteil, fund manager at International Capital Gestion in Paris.
Euronext delayed the opening of trading in Sanofi and Aventis until 1230 GMT (8:30 a.m. ET). Novartis shares rose 3.8 percent.
Sanofi had been under mounting pressure to sweeten its offer following a decision last week by Novartis, acting as a "white knight," to take up an invitation from Aventis to start talks.
In the event, however, Novartis never made a formal bid to the Aventis board and said it would not pursue its interest.
The Swiss firm said it had decided not to bid following Aventis's decision to engage in discussions with Sanofi "at the strong intervention of the French government."
It is not the first time Paris has intervened to encourage the creation of national champions able to compete with industry heavyweights across the Atlantic.
In the past, the government has also moved to keep foreign firms out of takeover battles in the banking and oil sectors. More recently, it helped arrange bailouts of France Telecom, engineering firm Alstom and computer-services group Bull.
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Last Friday, the French government stepped up efforts to broker a deal between Aventis and Sanofi by calling top officials from the feuding companies to talks in Paris.
-- Reuters contributed to this story.