Rhone/Hoechst drug deal close

RHoNE-POULENC of France and Hoechst of Germany are understood to be close to agreeing a pounds 26bn merger, creating one of Europe's most powerful pharmaceutical companies.

Speculation that the two companies may unite has pushed their shares ahead recently and an announcement is thought possible this week.

Rhone-Poulenc has been searching for a partner for some time to take on the likes of Merck, the world's biggest drugs company, Glaxo Wellcome and Novartis, itself the result of a merger of two companies.

A merger between the French company and Hoechst would create a combined business with drugs sales of $13bn. It would be bigger than Zeneca, which is valued at pounds 22bn, but still dwarfed by Glaxo-Wellcome, which is capitalised at pounds 66bn.

Hoechst is valued at pounds 16bn and makes the allergy drug Allegra. It employs several thousand people in Britain and owns a range of businesses including the drugs company Arthur H Cox, HPG Industrial Coatings and RV Chemicals.

Rhone-Poulenc is valued at pounds 10bn and is the world's number one manufacturer of vaccines. Three years ago it acquired Fisons for pounds 1.8bn after a hostile bid battle.

Hoechst is the world's ninth biggest drugs company while Rhone-Poulenc is number seventeen. Analysts said a merger would enable them to pool research and development budgets and improve their pipeline of new drugs. It would also give them greater marketing clout against the likes of Glaxo- Wellcome and Novartis.

But observers also pointed to the tension that could arise over who would run the Franco-German group. Based on market capitalisation, Hoechst would be the dominent partner in any merger.

However, one source close to the French company said: "Unless Rhone-Poulenc is in the driving seat, I can't see it happening. It won't want to take second place to Hoechst, even though it is the smaller of the two."

Hoechst is being advised by Lazard Freres while NM Rothschild is advising the French company.