So Sanofi-Synthelabo is making a bid for Aventis. Shows you what I know about this business - if I'd guessed that this was in the works, which I didn't, I'd have bet that it would have been the other way around. Aventis would seem to be the company more in need of help. But as the New York Times article (by Andrew Ross Sorkin and Gardiner Harris) put it:

"Publicly, Sanofi-Sythelabo seems the picture of health. . .But almost every merger in the drug industry's long history has been found, in retrospect, to have been done because of undisclosed troubles that often left managers looking for outside help."

They have a point there. In this case, it's Plavix, for stroke, which is where Sanofi is coining most of their money these days. There's a patent challenge from a much smaller company, Apotex, and this sudden move has people wondering if Sanofi thinks that they might well lose the case. But what do they want with Aventis? That's the former Hoechst-Roussel-Marion Merrell Dow-Rohrer and a basket of others: a batch of mediocre companies who combined to make one really big mediocre company, as far as I can see.

Ah, but Aventis is headquartered in France. And this deal would create a mighty drug company, third largest in the world, and it would be French. This is just the sort of thing that the French government finds irresistable, and they've already waded into the fray by urging Aventis to just lie back and enjoy it while Sanofi makes a hostile offer for them. Try to imagine, say, the Bush adminstration's Commerce department doing that. . .

So is this going to work? That's actually a two-parter. First off, is the merger going to take place? I think that Chirac's government will force the issue, one way or another. There are lots of leverage points, since Aventis has several large stakeholders around the French industrial scene. Surely various people owe one another certain favors - after all, they all went to school together, n'est-ce pas?

The only thing that could derail things is that this is, in the end, an unsolicited offer. Why Sanofi-Synthelabo and Aventis didn't settle this in the traditional European fashion is a mystery. Other unsolicited offers could start coming in, assuming that someone has a burning desire to own Aventis (or a desire to see Sanofi not own them.) Novartis? Roche (but Novartis has a big stake in them, which might slow things down.) AstraZeneca? Bayer? I don't know if those folks have the money, frankly, even if they have the desire. Pfizer? It's been months since they bought someone; they're probably getting nervous twitches by now.

And the next question is, would the merger work? Probably no worse than others, but likely no better. The merged drug-company landscape is not a very inspiring one. A lot of people have been thinking that these deals disrupt more things than they resolve. It's possible that Sanofi is a bit behind the curve here, and even if they win, they could live to regret it. To quote the Times article again:

"Hostile takeovers are almost unheard of in the pharmaceutical business, because much of the value of drug companies is tied up in things that are both unpredictable and opaque to outside observers: the undisclosed results of clinical trials for new drugs, patents whose scientific and legal underpinnings are often closely guarded secrets and scientists who can leave. Buying a drug company without being able to peek inside its labs and legal files is extremely risky."

Well said! I couldn't have put it better even from inside the belly of the whale, here. Now, try an interesting thought experiment: read that paragraph again, and every time it says "drug company", insert the word "stock" after it. Hrrm. It makes just as much sense that way, folks. If that doesn't furrow your brow a bit, you must not own many drug stocks.

Update: Steven Jens points out that Sanofi's offer didn't exactly set Aventis stock on fire. . .