Swiss healthcare group Novartis confirmed Friday that it may come to the rescue of French drugmaker Aventis, which is fighting off a hostile bid from Sanofi-Synthelabo.
Such a move would match the ambitions of Novartis's chairman and chief executive, Daniel Vasella, by creating the world's second-largest pharmaceuticals group after Pfizer, although analysts are uncertain if he will pull the trigger.
In a surprise statement, Novartis — currently the world's number-five drugmaker — said it was considering whether to pursue a "white knight" counter offer for Aventis but had yet to make a decision. The Swiss group made the statement in response to a request by French market authority AMF.
Financial sources later told Reuters that Novartis was in early-stage talks with a number of banks about the possibility of raising a loan to help fund any stock-and-cash offer.
Novartis has been examining since last month whether it would make sense to bid for Aventis and speculation about a white knight offer has intensified in recent days.
There were market rumours in Paris, Zurich and London on Thursday it was considering offering 0.9 of its shares plus 35 euros in cash for each Aventis share, or roughly 67 euros per share.
Sanofi's stock-and-cash bid, which has been rejected by Aventis, is currently worth around 47.3 billion euros ($58.16 billion), or 59 euros per Aventis share. That combination would create the world's third-largest drug firm.
Novartis investors nervous
Initial reaction to Novartis's statement was negative, amid concern over the price of a potential deal and the risk overall sales growth might slow, and the group's shares fell 0.5 percent to 54.10 Swiss francs, following heavy losses on Thursday.
Aventis shares rose three percent to 64.35 euros, a nine percent premium to Sanofi's bid .
Sanofi shares were up 3.35 percent at 57.10 euros by 1552 GMT as some investors speculated that it would be taken over if Aventis fell into the arms of Novartis.
Pictet private bank said France could go from having two significant pharmaceuticals players to none in short order.
"This is unlikely to be a scenario the French government would welcome and hence they make life difficult for Novartis," analysts Richard Jarvis and Andrew Fellows said in a note.
Most analysts believe, however, that an imminent move is unlikely with Novartis expected to seek a friendly deal and Vasella under no pressure to show his hand before wrangles over the legality of Sanofi's bid are resolved in May.
Marc Booty, industry analyst at Commerzbank in London, said Novartis was being "opportunistic" but he believed the Swiss company could extract significant cost savings via a merger with Aventis, making a deal potentially earnings-enhancing.
"The likelihood of Aventis remaining independent seems to be decreasing," he said.
Booty currently estimates there is a 10 percent chance of Aventis remaining as a standalone company, a 30 percent chance of a white knight bidder taking it over and a 60 percent chance of Sanofi prevailing with a higher offer.
One person familiar with Sanofi's thinking said it was under no pressure to rethink its offer. ""We're not ruling out any options but an imminent raised bid is unlikely," he said.
People familiar with Novartis's thinking told Reuters last month that the group was studying the Aventis situation but was wary about entering an all-French takeover battle.
Sector consolidation
Vasella has said repeatedly that Novartis — itself formed by the 1996 merger of Sandoz and Ciba-Geigy — was ready to take part in the drug sector's inevitable consolidation amid pressure on prices and the rising cost of developing new medicines.
But he has also made clear Novartis would not make acquisitions without regard for price and saw its main focus as internal growth.
Officials at Aventis had no immediate comment on the Novartis statement.
The firm has told investors to keep their nerve and hold on to their shares, as it seeks alternatives to what it said was a "ridiculous" bid from Sanofi, a smaller rival.
Analysts said Friday's statement signalled that Novartis's interest in Aventis was more than just cursory.
"Novartis is checking out the possibility of a combination with Aventis. In other words: Yes, we want to buy the company," the equity sales team at Aargauische Kantonalbank told clients in a note.