Employees concerned over Sanofi Synthélabo takeover bid for Aventis

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During the early months of 2004, talks have been taking place between some of the world's largest pharmaceuticals groups in the wake of a takeover bid by the French-based Sanofi Synthélabo for its rival Aventis. A stock market, media and legal struggle has ensued. No matter what the outcome, the workforces of the companies concerned are very concerned. Successive restructuring and reorganisation initiatives have already hit jobs hard at the two firms.

On 26 January 2004, Sanofi Synthélabo- France’s second-largest pharmaceuticals company and the world’s 17th largest - officially announced that it was bidding to take over the Aventis pharmaceutical group, which was created when Hoeschst-Marion-Roussel and Rhône-Poulenc merged in 1998 (FR9812146F). In so doing, Sanofi Synthélabo is attempting to become the world’s third-largest pharmaceutical group, behind Pfizer and Bayer.

Aventis management rejected the bid, which was deemed hostile for both shareholders and employees. On 27 February 2004, Sanofi Synthélabo offered EUR 65 per share in a proposed deal worth a total EUR 52.1 billion, with absorption and restructuring costs estimated at EUR 2 billion. The Sanofi Synthélabo bid is 19% cash and 81% a share exchange (Aventis shares for Sanofi Synthélabo ones).

Sanofi Synthélabo’s goal is to concentrate and integrate the two companies in order to create an entity with enough 'critical mass' to take on its rivals, especially those based in the USA. This initiative is part of a strategy based on finding 'blockbuster' drugs, with the potential to generate over EUR 1 billion each in revenue annually. This strategy permeates the entire pharmaceuticals industry.

The French government’s reaction to this announcement has swung from an initial refusal to adopt a clear position, due to unwillingness to take sides, to statements supporting the takeover. In early March 2004, Prime Minister Jean-Pierre Raffarin came out in support of Sanofi Synthélabo’s takeover bid.

The trade unions at the two companies called protest demonstrations. At Sanofi Synthélabo, this action was coordinated through an inter-union body made up of the French Democratic Confederation of Labour (Confédération Française démocratique du travail, CFDT), the General Confederation of Labour (Confédération générale du travail, CGT), and the General Confederation of Labour-Force Ouvrière (Confédération générale du travail-Force Ouvrière, CGT-FO). At Aventis, CGT has demanded a halt to restructuring at the company whereas CFDT, while remaining vigilant, is not entirely hostile to closer ties between the two companies. All the unions are concerned about the impact of the proposed takeover on employment, seen as being always the major loser in such successive restructuring initiatives.

Stock market and legal battle

The conflict over the takeover bid, which has received great media coverage, has seen each camp fine tuning their positions, while the organisation and control of capital at both Aventis and Sanofi Synthélabo have been the subject of rumours. Kuwait Petroleum Corporation (KPC), the majority shareholder in Aventis, intends to withdraw from the pharmaceutical industry in the near future, while the cooperation between Total and L’Oréal, the two major shareholders in Sanofi Synthélabo, is due to end at the end of 2004, with Total pulling out.

The goal of Sanofi Synthélabo’s chief executive, Jean-François Dehecq, in taking over Aventis is to create a strong company, reorganised in such a way as to eliminate overlap and to reduce costs, thus allowing the company to focus on strategic products and provide a better return for shareholders. The clearly strategic nature of this takeover bid is confirmed by the comfortable profits hitherto recorded by both parties.

However, Aventis management, which deems the terms and conditions of the transaction to be unsatisfactory, launched legal action in mid-February 2004 in the form of an appeal against a decision by the Financial Markets Commission (Autorité des marchés financiers, AMF), ruling that the takeover/share-exchange bid was legally acceptable, thus supporting Sanofi Synthélabo’s strategy.

The legal proceedings seem to be a way for Aventis to buy some time, in order to build a solid legal case and possibly to look for an alternative buyer. The Swiss group Novartis, which is the world’s fifth-largest pharmaceuticals firm, has regularly been cited as a possibility. Novartis has until June 2004 to convince Aventis that linking up with it would be beneficial and make a higher bid than Sanofi Synthélabo’s original offer. Novartis would insist especially on the complementary nature of their activities and the various 'synergies' that already exist between the two companies in cardio-vascular, diabetes and cancer research. Novartis has been focusing on the non-hostile nature of the transaction it is working on. If indeed Novartis does top Sanofi Synthélabo’s initial offer, then the latter could well be forced to increase its offer.

Legal action recently launched in the USA against Plavix, a medication produced by Sanofi, has further complicated these legal attacks and counterattacks.

Employees' concerns

Faced with this tangled legal and financial situation, employees of the two firms have expressed major concerns. It is important to keep in mind Aventis’s situation over recent months. The company began a major restructuring initiative in March 2003, which has resulted in the closure of the research and development centre at Romainville (93) and the elimination of 666 jobs in the Paris area (Ile de France), including 500 at Romainville and 150 at Vitry. This centre had been under threat since 1998. Employees had been informed of the potential job losses in a report and had repeatedly taken industrial action to show their opposition. The reorganisation initiative also led to various jobs being moved to Vitry sur Seine (94), with this plant becoming Aventis Pharma France’s sole research centre. At the same time, the past few months have seen Aventis divest itself of various assets. The company’s Villeneuve la Garenne plant was sold to a manufacturer called PCAS, with Aventis becoming a customer of this new subsidiary. This move resulted in ongoing strike action, including a sit-in by the plant’s 146 employees. Aventis also offloaded its Gennevilliers centre by subcontracting its workload.

On a more general note, talks are underway between Aventis and the US investment fund Blackstone. These negotiations are an attempt to spin off the production of 'older' or 'non-strategic' drugs - worth EUR 1.5 billion and making up 9% of turnover - to subsidiaries. This move has resulted in the closure of the Aventis plant at Compiègne. The impact of this reorganisation initiative (the 'AURORA' initiative) on other plants is yet to be seen.

Sanofi Synthélabo is also being restructured and reorganised. Indeed, the very day the Aventis takeover bid was announced, employees at the company’s Notre-Dame-de-Bondeville plant learned that it was slated for sale with the loss of 674 permanent, 22 fixed-term and 50 employment agency jobs.

Aventis staff have suspected that the company might merge with Sanofi Synthélabo for months. A report by consultants Bionest Partners and Exane on the feasibility of a merger between Aventis and Sanofi Synthélabo had been posted on the Aventis intranet system as early as 24 September 2003 and was reported by the media in December 2003. The merger was slated to be concluded sometime in 2004 and was due to generate savings of EUR 500 million per year until 2006. Therefore, the announcement on 27 January 2004 did not come as much of a surprise to Aventis employees or unions. However, the unexpectedly hostile nature of the Sanofi Synthélabo bid, making Aventis the 'underdog', was a surprise. Until the announcement was made, it was generally believed that the merger would be on 'an equal partner basis'.

Commentary

The Sanofi Synthélabo-Aventis stock market battle is taking place against a backdrop of major frustration in the state and private research sectors. It raises the question of the coherence of scientific research faced with financial imperatives requiring ever-increasing profitability.

The takeover is part of a general trend towards company restructuring, which has become a pervasive and open-ended phenomenon in France and from which no industry is immune. The impact of this trend on jobs and working communities has yet to be seen. (Mélanie Guyonvarch, IRES)

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