Pharmaceutical M&A: Creating Value?
Observers and investors are placing their bets on the outcome of Europe's first hostile pharma bid, Sanofi-Synthelabo's proposed takeover of Aventis, and on whether the resulting entity would indeed be able to thrive against competitors such as GSK and Pfizer. But even against the checkered backdrop of past pharmaceutical mergers, it remains unclear whether Sanofi can achieve even an average amount of savings from such a deal.
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As Aventis digs its heels in and Sanofi refuses to raise its offer, a friendly deal between the two players looks increasingly less likely. Most observers still expect the deal to happen: white knight stories aren't convincing and none have the political support that this combination enjoys. But if Sanofi does win, it must use the transaction to transform its Franco-centric business, not merely enlarge it.
Despite the increasingly common perception of the helpless mega-merged giant, vastly increased scale can provide such companies with significant competitive advantages, from which companies were unwilling or unable to benefit in the past. The largest companies, structured properly, should be able to discover disproportionately more compounds; develop them faster; and market them more successfully. But to reap these benefits, the super heavyweight pharmas will, paradoxically, have to learn how to think small.
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