Rhone Poulenc and Hoechst finalise pounds 21bn drugs merger

FRENCH AND German chemicals giants Rhone-Poulenc and Hoechst are scouring the Franco-German border for a neutral site for the headquarters of their combined businesses as negotiators prepared for a final round of meetings that could lead to their Dm60bn (pounds 21bn) merger being unveiled next week.

With speculation mounting that a deal is close, the two groups yesterday put out a formal statement confirming that they are in discussions about combining their life sciences businesses. The merger would create the second biggest drugs company after America's Merck leap-frogged Britain's Glaxo-Wellcome in terms of sales.

The brief statement warned however that there could be no "guarantee as to the outcome of the current discussions". The talks, which are believed to have been going on for at least six weeks, have broken off at least once. Analysts pointed out that several other deals of which Glaxo-SmithKline is the most glaring recent example have collapsed even later stage.

Rhone-Poulenc's chief executive Jean-Rene Fourtou and his team were yesterday preparing to fly out to Hoechst's Frankfurt headquarters for a series of face-to-face meetings aimed at ironing out the final details of the deal.

Rhone is being advised by Rothschild and Goldman Sachs with Morgan Stanley and Lazards advising Hoechst.

In a further effort to avoiding trampling on national sensitivities, it is believed that an outside agency has been brought in to work on a neutral name for the combined operation on the model of Novartis, the product of the Swiss Ciba-Geigy-Sandoz merger.

Observers said there were clear signs of tensions between the French and Germans, with the French unhappy at suggestions that the Germans had the upper hand in negotiations.

Hoechst chief executive Jurgen Dormann will head the management board, with Rhone's Mr Fourtou being kicked upstairs to the supervisory board. The top job at the larger drugs division has gone to Richard Markham, the American who heads up Hoechst Marion Roussel. The agro-chemical division will be based in Lyons and headed by Frenchman Alain Godard.

Hoechst is to push ahead with the plans outlined last week to spin off its industrial chemicals businesses into a new quoted company called Celanese.

Analysts are highly critical of the deal. Both companies have pursued similar strategies aimed at reducing their exposure to bulk chemicals and building up their pharmaceutical operations through acquisitions. However, neither has any blockbuster drugs in the pipeline.

"This is a merger born out of weakness," said one analyst.