Aventis SA

Germany's Hoechst AG and France's Rhne-Poulenc SA have removed a threat to their planned merger by deciding to complete the deal in a single step this year, abandoning the complex three-year timetable they had originally planned. The alliance will create a life-sciences company with US$20 billion in sales and 95,000 employees. It will rank No. 2 worldwide in sales behind Merck & Co. Inc. of the U.S. and be the leader in crop protection and animal health. The fast-track solution was adopted in March after Kuwait Petroleum Corp., Hoechst's biggest shareholder -- with a 24.5% stake -- argued that it would be wiser not to waste time before cementing a full-fledged partnership. The Kuwaitis were clearly eager to boost shareholder value. The new company, Aventis SA, to be based in Strasbourg, on France's Rhine River border with Germany, will combine the two companies' pharmaceutical and agrochemical operations. Their chemical activities, representing about 10% of combined assets, will be divested. Marc Vienot, a veteran French banker and corporate-governance expert, is set to be named chairman of the Aventis supervisory board at a shareholders' meeting early in the summer. Jrgen Dormann, CEO of Hoechst, will be chairman of Aventis. Jean-Ren Fortou, Rhne-Poulenc chairman, will be Aventis vice chairman. The merger will generate annual cost savings of about $1.2 billion by cutting jobs and overlaps, according to Dormann. However, it won't be clear for several years whether the merged life-sciences business can forge a union more attractive to investors -- and more dangerous to competitors -- than its well-tested halves. One big problem will be to unite the French and German business cultures. "The aim is to create a new type of trans-European company that can battle it out in the marketplace," says Dormann. "Only a few companies can take part in the growth of the emerging life-sciences sector." Several hurdles lie ahead for Aventis. It will not be easy to develop a cohesive approach after the mind-boggling bouts of acquisitions and divestitures that have been the strategy mode of both Hoechst and Rhne-Poulenc during the last few years. The French company's moves have included a merger of its animal-health business with Merck. Meanwhile, Hoechst has created a three-way pharmaceutical merger of its own drugs business with Marion Merrell Dow of the U.S. and Roussel Uclaf of France, forming Hoechst Marion Roussel. The French and the Germans go into the Aventis venture with a lot of restructuring not yet completed. And what has already been achieved still needs to be absorbed. Hoechst's profit targets in drugs have not yet been met because costs remain greater than savings. Likewise, Rhne-Poulenc's gamble on the emerging sciences of genomics and gene therapy means that marketable products, however exciting they may seem today, won't be ready for some years. "It might have been wiser for Hoechst and Rhne-Poulenc to finish their housecleaning before moving under the same roof," says a Paris investment banker. "But, if they had waited, they could have been gobbled up in a takeover operation." Investors also will need to be persuaded that the new Aventis team can work together. The word from Hoechst and Rhne-Poulenc is that they have carefully studied the errors of Glaxo Wellcome PLC and SmithKline Beecham PLC, whose merger collapsed when the two British drug companies realized their management styles and corporate cultures just would not match. An even bigger challenge for Aventis is that it is painfully under-represented in the U.S., the market for nearly half the world's drugs and also the most profitable source for sales. Executives of the new group say the U.S. sales force must be boosted by at least 500 to reach 4,000. Only then can it tap the possibilities for its developing product portfolio. "But our combined marketing muscle means that one plus one equals more than two," argues Igor Landau, Rhne-Poulenc group president and a member of the new management board. That will mean saving more than the $1.2 billion targeted for the next three years. Lagging behind Merck, Glaxo Wellcome, and Switzerland's Novartis AG in profitability at its launching, Aventis has a tough climb ahead.