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February 9, 2004
I will do such things - What they are yet I know not. . .
Igor Landau of Aventis must have been seen a performance of King Lear recently, to judge from his tactics to fend off Sanofi's hostile takeover bid. Or since the following also has a "Do you feel lucky?" ring to it, maybe they've been watching old Clint Eastwood movies instead. Surely those have been dubbed into French. From a Dow Jones article by Hollister Hovey:
Because Sanofi's stock-and-cash bid was hostile, Sanofi doesn't have access to the fine print of Aventis' marketing deals. Many of Aventis' products that it sells or is developing through joint ventures or co-marketing deals have so- called change of ownership clauses written into the contracts, said Mr. Landau. If the Aventis partners which have those clauses in their deals decide they don't like Sanofi, that may give them an option to regain rights on the products, noted Chief Operating Officer Richard Markham. Aventis won't say which products they are. . .but Mr. Markham said the products are "material enough" to mention the risk.
Meanwhile, Sanofi is running newspaper ads with pictures of sick children, implying that they won't get well unless the merger goes through. Reminds me of the old National Lampoon "Buy this magazine or we'll shoot this dog" cover. I have to say that I'm enjoying watching all this. Doubtless it wouldn't be quite as entertaining if my job were one of the lightweight objects being blown around in the whirlwind.
I have no useful predictions of whether this deal will go through. For one thing, companies make idiotic acquisitions all the time, terrible potlatches of money and ego. Sometimes these things just take on a life of their own - folks get so wrapped up in trying to win that they forget why they were playing the game. The encouraging words from the investment banking community don't help much with that problem. It's like asking a contractor whether he thinks you really need to add those three rooms to your house.
I have the opposite bias: I think that pharmaceutical mergers have an unencouraging history. Even the ones that have more or less worked out have done so after a terrible period of unfocused disruption, during which many good ideas hit the wall and many good people hit the exits. As I've said before, the whole basis for big drug mergers seems specious to me. I refuse to believe that research productivity scales in anything close to a linear way. After a company gets to a certain size, I think it's more likely to fit an exponential curve - but in the wrong inflection, mind you.
Even if Sanofi does succeed, it probably won't be on the terms they wanted. The gap between Sanofi's offer and Aventis's actual market value is widening again. Here's a recap of how those two have compared since the bid was announced. (Note that in this chart, the original bid was at -3.6%, a premium to Aventis's stock price at the time.) The shares of both companies have gone in opposite directions since then. That represents a lot of betting that Sanofi will need to come up with a better offer, and that someone else may well do the same. Here's hoping that everyone involved keeps their wits. But if there were a stock-market proxy for that proposition, I'd go short on it.
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