Sanofi, Bristol-Myers deal seen near

Sanofi, Bristol-Myers deal seen near

 

Pre-merger agreement to have been signed last week and could create the largest drug company, report says.

Sanofi-Aventis and Bristol-Myers Squibb Co could announce a friendly merger deal within the next few weeks to create the world's biggest drug companies, according to a report Monday.

In an unsourced story, French financial newsletter La Lettre de l'Expansion said a pre-merger deal was thought to have been signed last week.

Buying Bristol-Myers would be a coup forSanofi's ambitious chairman and veteran deal maker, Jean-Francois Dehecq, who is due to retire from the French firm at the end of 2009.

The acquisition of the U.S. company - which has a market value of around $51.5 billion - would see Sanofi leapfrog Pfizer Inc as the biggest pharmaceuticals company in the world by sales and push GlaxoSmithKline Plc back into third place.

Sanofi and Bristol-Myers have long been tipped as possible merger partners, since they work together in marketing the hugely successful blood thinner Plavix, as well as Avapro for hypertension.

A Sanofi spokesman said the company did not comment on press speculation.

Still, many analysts and industry executives are convinced Sanofi has been taking a long, hard look at U.S.-based Bristol-Myers in recent months.

"This wouldn't surprise me. Sanofi needs increased exposure to the U.S. market. They have substantially deleveraged their balance sheet since they took over Aventis, so they are prone to do something going forward," WestLB analyst Oliver Kaemmerer said.

Any bid could be a mixture of cash and shares, he said.

Novartis Chairman and Chief Executive Daniel Vasella said only last month he believed such a deal could be on the cards.

"I would not be surprised if companies, which are connected via products - like Sanofi-Aventis and Bristol-Myers Squibb - think about a merger," Vasella told a Swiss newspaper.

Dilutive?

Sanofi, with a market capitalization of €95 billion ($123 billion), is twice the size of Bristol-Myers, but its shares are less highly rated, and analysts believe an acquisition could significantly dilute Sanofi earnings.

Bristol-Myers, whose shares have been buoyed in recent months in part by takeover speculation, trades on around 21 times forecast 2007 earnings while Sanofi fetches just 13.3 times, according to Reuters data.

Analysts believe any final deal for Sanofi to buy its smaller U.S. partner is likely to be contingent on the outcome of litigation surrounding blockbuster Plavix.

A key court case over Plavix patents opened in the United States last week, with the two allies fighting a challenge from Canadian generic drugmaker Apotex. A verdict is not expected before the third quarter of the year.

Most analysts bet Sanofi and Bristol-Myers will win the case, which could then clear the way for a full-blown merger.

Bristol-Myers has been seen as vulnerable to a takeover for some time, following management upheaval, while Sanofi would benefit from adding the U.S. company's many new experimental drugs to its pipeline.

"Bristol-Myers becomes a very attractive takeover prospect because it has very solid pipeline, once the Plavix issue is resolved," a second analyst commented.

Shares in Sanofi slipped back after the report, after initially rising as much as 0.8 percent. They were down 0.9 percent at €69.30 ($89.50) by 4:30 a.m. ET.