Hoechst and Rhone-Poulenc To Merge Pharmaceutical And Agricultural Businesses
Rhone-Poulenc SA (Paris), and Hoechst AG (Frankfurt, Germany), announced Dec. 1, 1998, that they will merge their life sciences activities into a new company called Aventis. Equally owned by Hoechst and Rhone-Poulenc, Aventis will combine the pharmaceutical and agricultural businesses of both groups. The companies will divest their remaining chemical businesses. The German firm will become Aventis Hoechst AG, and the French firm, Aventis Rhone-Poulenc SA.
In 1997, Rhone-Poulenc and Hoechst had a total R&D budget of about US$2.5 billion, combined sales of US$20 billion, and 95,000 employees. Some jobs will be eliminated due to the merger. Incorporated in France, Aventis will be headquartered in Strasbourg, Germany. The combined company will concentrate on the U.S. market, and will continue building its network of academic and biotech alliances in the United States, France, and Germany.
"We want to create a new company, with European roots and global reach, to take full advantage of the extensive opportunities of life sciences in the 21st century," said Jean-Rene Fourtou, chairman of Rhone-Poulenc and Jurgen Dormann, chairman of Hoechst AG, in a joint statement. "With its new culture, increased R&D resources, competitive position in emerging technologies, enhanced pipeline, and strong marketing muscle, Aventis will have a solid platform for sustained medium and long-term growth in both sales and profitability,"
Combining the life sciences assets of both companies is expected to save more than $1.2 billion over the next three years. Around 60% of the estimated savings would be in pharmaceuticals and around 40% in agriculture and other areas.
Despite this, many fear that the new company may have trouble producing enough new lucrative drugs to match competitors' profitability. Investors expressed their dissatisfaction with the news of the merger by pushing down the shares of both companies. Rhone-Poulenc stock fell 7% in Paris trading, and Hoechst stock fell 6 % in Frankfurt. Because strong labor unions exist in both Germany and France, analysts say that the new company may have trouble cutting costs.
It is anticipated that Dormann will be appointed chairman of the Aventis board of management and Fourtou vice chairman. The executive committee of Aventis will also include Alain Godard (CEO of Aventis Agriculture), Richard J. Markham (CEO of Aventis Pharma), Patrick Langlois (chief financial officer), Rene Penisson (human resources), and Klaus Schmieder (chief administrative officer). The closing of the transaction is anticipated for mid 1999, after legally required procedures and approvals are completed. The full merger of Hoechst and Rhone-Poulenc is expected to occur within the next two to three years.
Aventis' 1997 pro forma consolidated sales would have amounted to $20 billion, with pharma accounting for 72% and agriculture for 28%. From a geographical breakdown standpoint, Europe would have accounted for 42%, the United States for 25%, Asia for 14% and the rest of the world for 19%. Aventis' 1997 pro forma consolidated earnings before interest, tax depreciation, and amortization would have been $3.8 billion.
Aventis Pharma will provide prescription pharmaceuticals through Hoechst Marion Roussel (HMR) and Rhone-Poulenc Rorer (RPR); vaccines through Pasteur Merieux Connaught; and biologicals through Centeon, which will be fully owned by Aventis. Aventis Pharma will also incorporate Hoechst's 32.5% stake in the diagnostics company Dade Behring.
The pipeline of Aventis Pharma will include over 60 promising projects. Products will be introduced to treat cardiovascular diseases, cancer patients, asthma/allergy, diabetes, and central nervous system disorders. Vaccines, biologicals, and bone/hormone replacement therapies will also be developed.
From its creation, Aventis Pharma will be well established in a number of important core therapeutic areas. Globally, it will be world number one in vaccines, number two in biologicals, number three in cardiovascular disease and diabetes, and number four in anti-infectives and asthma/allergy. In oncology, Aventis Pharma will have a fast growing franchise, driven by the drug Taxotere and supported by a broad pipeline across pharmaceuticals, gene therapies, and anti-tumor vaccines. As part of its focused strategy, Aventis Pharma may dispose of its less strategic products.
Aventis Pharma will emphasize the U.S. market. The company will increase its distribution network, which currently includes about 3,400 sales representatives. Increased funds for technology access, advertising, and promotion will further contribute to building a solid foundation for future expansion.
With total 1997 pro forma consolidated sales of $4.5 billion, Aventis CropScience will be a world leader with leadership positions in herbicides, insecticides, fungicides, and non-agricultural products. Its broadened product portfolio will provide the company with complementary weed, disease, and insect-management solutions. The main goal of Aventis CropScience is to achieve a 10% market share in the U.S. Midwest in the next few years.
Aventis Agriculture will include CropScience, including Hoechst Schering AgrEvo and Rhone-Poulenc Agro. Hoechst and Schering have agreed in principle that Schering will join the partnership in Aventis CropScience subject to final negotiation; animal nutrition, presently belonging to Rhone-Poulenc; animal health, through Merial, the 50/50 joint venture between Rhone-Poulenc and Merck & Co. For the time being, it is expected that HR Vet will remain a subsidiary of Hoechst AG.
Aventis will be 50/50 owned by Hoechst and Rhone-Poulenc respectively, both of which will continue to be publicly listed following the completion of the transaction and will be renamed Aventis Hoechst and Aventis Rhone-Poulenc. Hoechst Marion Roussel, Rhone-Poulenc Rorer, Pasteur Merieux Connaught, Centeon, AgrEvo, Rhone-Poulenc Agro, Rhone-Poulenc Animal Nutrition and the 50% Rhone-Poulenc stake in Merial would be contributed in the new legal entity, as well as the 32.5% participation of Hoechst in Dade Behring. The creation of Aventis will not involve either exchanges or acquisitions of shares at the parent company level and will not lead to new additional debt.
Hoechst and Rhone-Poulenc intend to divest their remaining chemical businesses, in line with the strategy they have both already started to implement. Earlier this year, Rhone-Poulenc floated a minority equity stake in its chemicals business, Rhodia. In Oct. 1998, Hoechst announced the definitive agreement to sell Herberts and, on Nov. 17, 1998, it announced plans to demerge Celanese and Ticona into an independent, publicly traded company to be known as Celanese AG.
The Hoechst/Rhone-Poulenc merger is expected to be submitted to both companies' general shareholder meetings by mid 1999, after the regulatory approvals have been obtained and the legal procedures carried out.
For more information, call Rhone-Poulenc 610-454-5452 or Hoechst 212-251-8088.