Technology Analysis & Strategic Management

Vol. 18, No. 5, 473 496, December 2006

The Socio-Political Economy of

Pharmaceutical Mergers: A Case Study
of Sanofi and Aventis
JAMES MITTRA
ESRC Innogen Centre, University of Edinburgh, UK

ABSTRACT This article critically analyses the events leading up to the 2004 merger between the
pharmaceutical companies Sanofi-Synthelabo and Aventis. It reveals the social, commercial and
political complexities and challenges of a merger process in which the defence of French
national interests and regional capabilities competed with traditional commercial narratives
before the deal was closed. The merger is analysed within the broader context of contemporary
debates, within the strategic management and innovation systems literature, about the process of
global innovation in pharmaceuticals, industry consolidation and the discursive socio-political
discourses that underlie cross-border merger and acquisition activity. The article critically
evaluates the competing criteria adopted by government and industry to justify different merger
scenarios and considers the implications for pharmaceutical innovation, industry consolidation
and M&A theory.

Consolidation in the pharmaceutical industry continued in early 2004 with the announcement that Sanofi-Synthelabo (a medium-sized French pharmaceutical company) would
merge with Aventis, its larger Franco-German rival. The decision, formally announced
in May 2004, followed four months of speculation and conjecture as the benefits
and risks of various merger scenarios were systematically evaluated. However, the evaluative criteria adopted by industry and the financial communitywhich prioritized conventional commercial factors such as R&D priorities and strategic synergies, technology and
product complementarities, patent exposure; and global sales/marketing capabilities
appeared marginal to the interests of the French government and other relevant stakeholders. In particular, representatives of the French government sought to include a
very different and perhaps incompatible evaluative criterion; that any merger preserves
national capabilities in pharmaceutical research and development. This article provides
a critical account of the tense and unstable relationship between national state interests
and globalized economic activity, as illuminated by the confluence of competing social,

Correspondence Address: James Mittra, ESRC Innogen Centre, Institute for the Study of Science, Technology &
Innovation, University of Edinburgh, High School Yards, Edinburgh, EH1 1LZ, UK; Tel: 44 (0)131 6502453.
E-mail: james.mittra@ed.ac.uk
0953-7325 Print=1465-3990 Online/06=05047324 # 2006 Taylor & Francis
DOI: 10.1080=09537320601019594

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J. Mittra

commercial and political discourses that shaped the outcome of this very public and contentious merger.
A number of features of the Sanofi and Aventis merger deviate from those conventionally associated with pharmaceutical mergers and acquisitions. First, Aventis was the subordinate partner despite being the larger and more profitable company with a diverse
product portfolio and strong capabilities, particularly in the high-value area of global
research and marketing. Second, other companies emerged as a potential suitor to
Aventis, such as Novartis, which appeared to offer a more suitable strategic fit in terms
of research and product complementarity, size and company culture. Third, and
perhaps most crucially, a national government refused to adopt a neutral position and
undermined the proclaimed commercial interests of a major company by implicitly endorsing Sanofis aggressive acquisition. The French government exploited the rhetorical force
of in the national interest to justify its interventionist policy. Here, national interest is
conceived to require the retention of R&D facilities, jobs and innovative capabilities
within rigidly defined national boundaries. The French government wanted to ensure
that a quintessentially French pharmaceutical national champion would emerge from
any merger. Its approach to corporate governance appeared to be fundamentally incompatible with the interests of industry and the financial community, which are concerned about
the location of economic activity only insofar as it might affect R&D management, productivity and corporate growth. It appears that even in a globally fragmented pharmaceutical industry, national politics continue to play a crucial role in corporate restructuring.
To disentangle and critically assess the discursive narratives and strategies deployed by
relevant stakeholders as they attempted to influence the merger process, this article draws
empirically on the reporting of the financial, trade and scientific press (particularly the
Financial Times, Chemistry & Industry and Nature Biotechnology) and data from
company websites and Deutsche Bank AG investment reports. Theoretically, the article
draws on and contributes to a now quite diverse literature on innovation and strategic
management, as well as important work on cross-border mergers and acquisitions.
However, it is important to note a limitation of the empirical evidence. Much of the reporting of the Sanofi-Aventis merger, particularly the instrumental role of politics in the events
leading up to the closure of the deal, was largely mediated through the financial and trade
press. Of course, these sources generally represent the interests of industry and investors,
so we should not presume that they are merely impartial observers. Nevertheless, these are
the only sources we have available for studying certain aspects of this particular merger.
Representatives of the French government did not express their opinions on the merger in
any official speeches or documents, so our understanding of their position can only be
garnered from attributable and non-attributable sources published by the trade press.
Furthermore, although sources such as the Financial Times and relevant trade journals
may be biased in that they largely represent the views of industry, investors and shareholders; they are nevertheless crucial to our understanding of how an important set of
stakeholders perceived the development and closure of the merger. Identifiable bias or
partiality does not necessarily represent an empirical problem for analysis if it constitutes
part of the research question.
The article is structured as follows. The first section explores contemporary theories
around M&A, paying particular attention to the growing literature on cross-border
deals. This literature provides an entry point for exploring some of the more nuanced
socio-political aspects of mergers, which have been largely neglected by conventional

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475

M&A theory. The second section provides a detailed and critical account of the SanofiAventis merger. It reveals how competing social, political and commercial narratives
came to shape a specific merger outcome. In particular, the evaluative criteria adopted
by industry and the financial community, which emphasized the challenges for successful
strategic management in a context of commercial and technological uncertainty, is contrasted with the very different priorities expressed by a broader range of stakeholders;
including the French government. The final section considers the implications of the
merger in the context of global pharmaceutical innovation, industry consolidation and
evaluation of cross-border mergers and acquisitions.
Theorizing Cross-Border Mergers and Acquisitions
Recent studies on innovation systems and strategic management have challenged the conventional view that merger and acquisition activities, and their subsequent success or
failure, are the result of rational and contiguous strategic assessments of tangible financial and technological assets and their complementarities. The contemporary literature
emphasizes the importance of looking at the firm as an actor, situated in elaborate and
highly distributed innovation systems or networks.1 The individual firm must develop
and implement strategies not solely based on objective knowledge, but also, as Walsh2
argues, on the contingencies of its internal strategic culture/ethos, prevailing norms and
routines, and position in the global value chain. Also of crucial importance to our analysis,
according to Walsh, are the vagaries of the selection environment within which firms
create and sustain markets and exploit various strategic options.
Crucial to any contemporary understanding of mergers and acquisitions is both the
intangible social complexity, which structures various strategic options, and bounded
rationality, which refers to the material constraints on corporate decision-makers.3 As
Allen et al. rightly argue:
By taking as a starting point the organization as a complex system of interaction, we
are forced to reconsider the nature of the processes that we observe, the strengths of
interaction and how these shape eventual outcomes. In addition, we are forced to
step back from the position of viewing the future as the outcome of a rational, predictable process.4
Traditional studies of M&A activity generally tried to evaluate the success or failure of
both hostile and friendly mergers. However, a number of contemporary authors argue
that this conventional literature did not establish a good definition of what counts as
success, and singularly failed to reveal and explain the diverse underlying motives of
any merger decision.5 Allen et al. note:
In much of the research and theory to date, mergers are presented primarily as a
rational response to managerial actors who are capable of exerting strategic
control over their organizations evolution. This notion of control derives from a
concept of organization that has its foundations in Newtonian mechanics in which
the emphasis is on predictability and strategic choice . . . However, missing is recognition of intangible assets and the extent to which these assets may be lost
post-merger. Complexity focuses on the dynamics of adaptation and transformation

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J. Mittra

and how new organizations and capabilities are created from two previously independent units.6
The concept of capabilities is important for any evaluation of the potential success or
failure of merger and acquisition activity. However, the relationship between capabilities
and competitive performance is to a large extent anomalous. Coombs and Metcalfe
employ the concept of causal ambiguity to argue that it is often a black box, even for
the management of a firm. They argue that particular difficulties arise when:
A firm comes to choose which other imperfectly understood organizations to engage
with in co-operative agreements to generate new capabilities, and similarly, these
difficulties arise when organizations consider mergers or acquisitions that will
require the combination of capabilities.7
The authors suggest that firms preparing to merge need to make an important choice
between co-ordination and combination, or perhaps even a sequencing of both, following an initial evaluation of their respective capabilities for similarity, propensity to create
new capabilities and vulnerability to damage.8
Merger and acquisition activity does appear to be a complex social process that is
more than simply a transfer of ownership of physical assets and market position, but
also a phenomenon that brings together, as James rightly notes: distinctive combinations
of resources, routines, capabilities, organizations and dominant logics that previously
defined separate organizational structures.9 Merger decisions are rarely, if ever, determined by the application of a single dominant logic or commercially expedient sets of protocols. Social complexity and capability approaches therefore undermine notions of crude
instrumental rationality. Walsh and Lodorfos10 argue that recent mergers are not just about
financial considerations, but also long-term strategy in terms of reshaping the industry and
moving in chosen technological directions. In this sense, companies are always constrained by bounded rationality. They must search for rationalizations from a broad
range of indicators, which include not only the tangible assets of the firm, but also
social and technological consideration of innovative capability and growth, absorptive
capacity11, company culture/ethos, market orientation and socio-political modalities.
In the case of cross-border mergers and acquisitions, the intangible socio-cultural
dimension of organizational restructuring and strategic foresight is of critical importance.
In the innovation-driven pharmaceutical industry, companies are increasingly pursuing
cross-border mergers and acquisitions to capture knowledge, product portfolios, expertise
and access to new markets,12 as they attempt to manage innovation and productivity
deficit13 and respond to the positive and negative externalities of their operating environment. The globalization of pharmaceutical research and development, reflected in the geographic fragmentation of research discovery, manufacturing and marketing capabilities, is
constitutive of a broader inter-industry trend towards international and supranational
merger and acquisition activities within the modern global economy.14
Key to the success of any merger is adequate pre-merger evaluation of combination
potential, which requires a complex assessment of technological, financial, strategic
and cultural fit. Larsson and Finkelstein15 claim that the degree of synergy realization
provides a better gauge for the success of M&A than ambiguous criteria such as accounting or market structure:

Socio-Political Economy of Pharmaceutical Mergers

477

Synergy realization depends on the combinations potential, the degree of integration achieved, and the lack of employee resistance . . . We developed hypotheses
on the interrelationships among those factors, and on how they mediate the performance effects of such key characteristics of M&As as management style similarity,
cross-border combination, and relative company size.16
According to the authors, significant efficiencies will not be created by M&As with low
combination potential. Combinations with high potential, on the other hand, will generally
provide greater synergy realization. Crucial to any assessment of combination potential is
the degree of relatedness. However, studies have traditionally focused on the similarity
or relatedness of operations,17 thereby marginalizing strategic differences and complementary synergies throughout the value chain. Larsson and Finkelstein argue that synergies can be achieved through both economies of sameness, where similar operations are
accumulated, and economies of fitness, where different but complementary operations
are combined. In the latter case, strategic differences may create opportunities for synergistic complementarities by combining different operations that enhance the competitive
position of the resulting entity.18
Interestingly, Larsson and Finkelstein note that synergy realization can be significantly
affected by whether or not the firms are located in the same country. However, differential
effects may be identified at the organizational level, the human resource management level
and the strategic level. At the organizational level, the geographic distance that emerges
from cross-border M&A can impede the interaction and coordination required to
achieve positive synergies. At the human resource management level, social and cultural
differences may engender employee resistance. Indeed, much of the literature points
specifically to the risks associated with national cultural distance, in that it can lead to
causal ambiguity.19 Lubatkin et al.20 stress the importance of nationally bound administrative heritage; that is the organizational beliefs about how things ought to be done. They
claim that administrative routines are ethnocentric in that they partially reflect national
characteristics, norms and routines. They write: the institutions and culture of a nation
should shape a national mind-set, legitimizing certain ways of organizing that define its
administrative heritage.21 The implication is that cross-border acquirers must always confront challenges posed by the very different and perhaps incompatible administrative ethos
of their targets. At the strategic level, however, cross-border mergers can expedite access
to new markets and promote global synergies. Evenett notes that foreign acquirers often
transfer cutting edge technology, new strategic options and better managerial practices
to the domestic firms they acquire, which suggests that the beneficial effects of M&A
might be greater in the case of cross-border deals.22 This view is countenanced by Morosini et al.23, who argue that socio-cultural differences in organizational design of
norms, routines and repertoires, as well as new product development and other managerial
practices, can benefit the acquiring firm by enabling it to capture valuable practices unavailable in its home country.
These theories suggest that from a strategic management point of view, cross-border
mergers and acquisitions can enable a company to acquire valuable tangible and nontangible assets, so long as any potential risks of cross-cultural combination are identified
and resolved. Nevertheless, there is also the important normative issue of where economic
activity is geographically located. In the case of cross-border M&A, industry and other
relevant stakeholders are often divided on the issue of locational preference. Chapman

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J. Mittra

and Edmond argue that industrial restructuring in the European chemicals industry not
only affects the shape, including the geographical distribution, of industries, but also
the places with which they are associated.24 Indeed, the growing importance of
intra-European cross-border deals emphasizes that industrial restructuring is not limited
to local or regional places, but may also have an impact on the balance of economic
advantage between nations at the continental level. The effect of M&A on corporate
geographies, as the case of Sanofi and Aventis will clearly show, may agitate a diverse
range of stakeholders in those regions associated with the operations of the acquired
firm.25 In particular, mergers and acquisitions often result in the abandonment of facilities
considered by the new company to be surplus to requirements: This pattern of postacquisition adjustment not only reflects the continuing importance of economies of
scale in many industries . . . but also the introduction of lean production which requires
fewer factories.26 So from a commercial perspective, R&D restructuring through a divestment of certain non-core facilities may be pursued to achieve economies of scale, which
conflicts with the interests of nation-based stakeholders that wish to preserve existing
locations of economic activity. Chapman and Edmond note that in pharmaceuticals, the
trend has been towards the concentration of production in fewer and larger European
rather than nationally oriented facilities.27 Here, the emphasis is on the creation of eurochampions rather than national champions. However, when a new eurochampion
emerges from a cross border merger, many regional R&D facilities are subjected to
rationalization programmes as the company tries to reduce its cost base. The resulting
job losses considered commercially acceptable, and indeed necessary, from a corporate
standpoint are likely to be resisted by broader civil society and the political institutions
that represent it.
Although much of the recent M&A literature has provided invaluable insights into the
diverse organizational structures, routines and processes fundamental to any successful
evaluation of large-scale mergers, the nuances of the socio-political environment continue
to be largely neglected. The intrinsic role of conflictual politics in the outcome of the
Sanofi-Aventis merger may have significant implications for the future of the industry
or, alternatively, represent the last gasp of this kind of national strategy. The following
sections build on the theoretical perspectives outlined so far by exploring the socio-political discourses that enveloped orthodox commercial narratives on corporate strategy,
industrial growth and innovation in the case of this specific merger.
Commercial and Political Framings of the Sanofi-Aventis Merger Process
Speculation about a merger between Sanofi and Aventis began in December 2003, when
Sanofis principal investorscosmetics group LOreal and oil company Total indicated
that they would not renew their shareholder agreement. The implication was that both
shareholders would be free to sell their combined 44% stake in the company in December
2004. This led to speculation in the financial and trade press that Sanofi would pursue a
large-scale merger or acquisition. Although Aventis was a much larger and profitable
company, its sparse late-stage R&D pipeline placed it in the precarious position of becoming a prime acquisition target.
Before exploring the specific role of politics and company strategizing in the events
leading up to the Sanofi-Aventis deal, it is useful to analyse some key commercial/
economic data on the three companiesSanofi, Aventis and Novartisthat would

Socio-Political Economy of Pharmaceutical Mergers

479

become the focus of a much broader merger narrative (Table 1). In particular, I will reveal
how two different merger scenarios could be justified on the basis of evaluative criteria
generally adopted by industry-based stakeholders.
Evaluating the Potential of a Sanofi-Aventis Merger
At first there appeared to be a number of convincing commercial/economic justifications
for a Sanofi-Aventis merger. In terms of sales revenue, the merged company would rank
third globally after Pfizer and GSK and be able to strengthen R&D and global marketing
capabilities. Although Sanofi had a respectable late-stage pipeline of new drugs (25 products in phase 2 and 3), it had very limited capacity in global marketing: 58% of its
revenue stream was derived from European markets. Sanofi had been one of the fastest
growing companies as a result of its sleeping pill Ambien and thrombosis drug Plavix
but its lack of marketing presence in the United States was a palpable concern. Aventis,
on the other hand, had only 14 products in late-stage development (16% in phase 3),
which meant its pipeline was far weaker than most of its major competitors.28 Nevertheless, the company did have a large sales force (34,105) with a strong presence in North
America, reflected in the fact that Aventis generates 37.5% of its pharmaceutical sales
revenue in the United States. This data suggested that a Sanofi-Aventis merger could
bolster Aventis R&D capabilities whilst broadening Sanofis global marketing options.
In other words, economies of fitness29 could be achieved by combining different but
potentially complementary strategic operations.
Although the R&D capabilities, pipeline capacity and marketing presence of Sanofi and
Aventis were highly disparate, the companies therapeutic priorities appeared similar and
complementary. Therefore, it was possible that economies of sameness could be
exploited successfully through a merger. Sanofis strength in cardiovascular and central
nervous system disease, which generated 68% of the companys pharmaceutical sales in
2003, appeared to fit strategically with Aventis therapeutic foci. Although Aventis had
a highly diverse therapeutic portfolio, as do most global pharmaceutical companies, cardiology, CNS and oncology were core therapy franchises. A merged Sanofi-Aventis would
therefore likely become a world leader in cardiovascular, central nervous system and
oncology products.
Although there was much scope for synergy realization from a Sanofi-Aventis merger,
two potentially significant problems were identified by the financial and industry trade
press. First, both companies faced the risk of patent uncertainty on one or more of their
high-value drugs. Sanofi faced challenges to its patents on its Plavix drug, a blood-thinning
therapy that had the potential to achieve sales of $7.5 billion in 2006. Aventis also faced a
legal challenge to patents taken out on its thrombosis drug Lovenox and allergy pill
Allegra. It was suggested in a Financial Times article that any decision to merge might
be perceived as an admission by both companies that their respective court cases were
weak.30 Indeed, the Canadian generics firm Apotex received FDA approval to market a
generic version of Plavix in January 2006. Aventiss patent on Lovenox was invalidated
in June 2005 and the Allegra dispute is ongoing. Therefore, the implications of patent
exposure suggested by the financial community in 2004 were not entirely without
foundation.
A second problem related to the fact that the two companies had prospered under very
different corporate strategies and cultures. Sanofi was a research intensive company

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J. Mittra

Table 1. Key commercial data for Sanofi, Aventis and Novartis (2003)
Key facts

Sanofi-Synthelabo

Aventis

Novartis

Employees

33,086 (11,601 in sales and

6,877 in R&D)

75,567 (34,105 in sales and

6,956 in R&D)

78,541 (33,093 in sales and

10,653 in R&D)

Rank (based on
pharma sales)

13

Pharma
Revenues ($)

9.1 bn
Europe 58%
US 23.8%
Other 17.9%

19 bn
US 37.5%
Other 62.5%

16 bn
Europe 32%
US 42%
Other 24%

R&D ($)
Major
Therapeutic
Areas

1.4 bn
Cardiovascular/Thrombosis
CNS
Oncology
Internal Medicine

3.2 bn
Cardiology/Thrombosis
CNS
Oncology
Respiratory/Allergies
Metabolism/Diabetes
Arthritis/Osteoporosis
Anti-invectives
Vaccines (world leader)

3.7 bn
Cardiovascular
CNS
Oncology
Respiratory
Gastroenterology
Dermatology
Rheumatology
Transplantation
Ophthalmics

Major products

Ten major products. Seven of these are for

cardiovascular and central nervous system.
These two therapeutic areas generate 68%
of the companys sales revenue

Seven major products account for 44%

of total pharma sales

Nine major products account for

58% of total pharma sales

Pipeline

56 projects (25 in phase 2 or 3)

84 projects
Pre-clinical 36%
Phase 1 & 2 48%
Phase 3 16%

79 projects
Phase 1
Phase 2
Phase 3
Launched

Aventis pursues a strategy of product

leadership, focusing its efforts on
core disease areas. It has aggressively
deployed a targeted in-licensing and
alliance strategy to supplement
internal R&D. The company has a
large number of agreements with
smaller biotech companies. It has
diverse marketing capabilities with a
6,500 strong sales force in the US

Novartis is a broad-based big

pharma company involved in a
number of therapeutic areas. It has
a large number of R&D alliances,
many with innovative biotech
companies and academic
institutions. Novartis recently
moved its R&D headquarters to
Boston, US, to exploit the citys
expertise in life science
innovation and clinical
excellence

Sanofi-Synthelabo was built up slowly through

a series of mergers and acquisitions.
Although its R&D spending is dwarfed by
most other pharmaceutical companies, it is
very much a research driven company that
focuses on in-house R&D and has marketed
blockbuster drugs. Less reliant on strategic
alliances with outside innovators. Company
is on the dividing line between medium
sized European player and global big
pharma

Source: Company websites and Deutsche Bank AG Investment Reports.

Socio-Political Economy of Pharmaceutical Mergers

General
Strategy

32%
37%
23%
8%

481

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J. Mittra

primarily focused on sustaining its strong internal R&D capabilities; preserving what
might be termed a closed system of innovation. Unlike most pharmaceutical companies
in the post-genomic age, Sanofi did not rely on cultivating complex strategic alliances
and licensing agreements with external innovators to achieve economies of scale and
scope in early stage R&D. The emergence of disruptive life science products and technologies by small, innovative companies, coupled with the challenges and uncertainties of
the external operating environment, has indeed driven many pharmaceutical companies to
pursue M&A or outsource certain core R&D functions.31 In contrast to Sanofi, Aventis (a
more traditional conglomerate company) had pursued the more conventional big pharma
strategy of product leadership in a number of core disease areas by aggressively prosecuting licence agreements and strategic alliances to supplement its in-house R&D. Many
of these agreements were with small, innovative biotechnology firms, which signalled the
companys belief in and commitment to biologics-based medicine. It was possible that if a
Sanofi-Aventis merger proceeded, there would be significant post-merger integration
problems as Sanofi would likely dispose many of the biotechnology-based collaborations
Aventis had successfully fostered. This issue will be explored in more detail in the final
section.
Exploring the Commercial Benefits of a Novartis-Aventis Merger
Although it was conceivable that certain positive synergies could be engendered by a
Sanofi-Aventis merger, the potential obstacles to a commercially successful merger
could not be discounted. Indeed, uncertainty and scepticism about the commercial benefits
of a Sanofi-Aventis partnership persisted throughout the pre-merger process. Furthermore,
other companies, such as Novartis, emerged as a potentially more suitable partner for
Aventis, which was undoubtedly in a difficult position because of its narrow R&D pipeline. From a commercial/strategic management perspective, the data suggest that a
number of benefits could accrue from a Novartis-Aventis merger.
First, the merged company would become the second largest pharmaceutical company,
after Pfizer, in terms of ethical drug sales. The fact that both companies generated most of
their revenues in the US market (Aventis 37.5% and Novartis 42%) suggested that
economies of sameness would enable the companies to consolidate and extend their
market scope. The fact that the United States continues to represent the worlds largest
pharmaceutical market means that any company with global aspirations must be able to
exploit it efficiently and successfully. The combined sales force of a merged NovartisAventis (60,000) would have facilitated the scaling-up of marketing in the United
States.
Second, Novartis and Aventis had a number of product complementarities. Both had
successful franchises in cardiovascular, central nervous system, oncology and respiratory
therapies. Furthermore, Novartis would acquire a strong foothold in the diabetes market,
as Aventis planned to register a potential blockbuster drug, Exubera, which it had
co-developed with Pfizer. The merged company could become a world leader in cardiovascular and diabetes therapies and have a 14% market share in oncology drugs.32
Although Sanofi and Aventis also had a number of product complementarities, Novartis
brought the additional benefit of low patent exposure. Its portfolio of licensed therapies
largely comprised recently launched products. The company was not expected to be
exposed to any significant patent loss until 2007 and, even then, it appeared to have

Socio-Political Economy of Pharmaceutical Mergers

483

built a sufficiently diverse pipeline to offset any sales lost to patent dispute. Since Novartis
had such a broad and strong R&D pipeline, with 63 projects in phases 2 and 3 as of 2003,
Aventis, in theory, would be able to build internal R&D capacity just as successfully with
Novartis as it could with Sanofi.
A third potential benefit of a merger between Aventis and Novartis, which Sanofi did
not appear to offer, was the high combination potential of complementary corporate
strategies and identities. Both Novartis and Aventis pursued product leadership in a
number of high-value therapeutic areas by cultivating strategic alliances and licensing
agreements with outside innovators, particularly those involved in the life sciences. Therefore, Aventiss existing collaborations would certainly not be threatened by a Novartis
merger and may have perhaps been reinforced. Culturally, the two companies were
very similar in terms of their strategic focus, organization and size. At the very least,
this merger scenario would unlikely engender significant employee resistance, a critical
factor for successful synergy realization.33 The M&A literature is replete with arguments
that successful integration of previously distinct company culturessuch as intangible
administrative and managerial routines, processes, values, assumptions and beliefs34is
a crucial indicator of merger success.35 Although some authors have questioned
whether cultural difference necessarily has a negative impact on M&A performance,
because the culture-performance nexus is not always conceptually well defined and
cultural effects are generally mediated by the specific integration strategy adopted by
management,36 the complexities of organizational difference cannot be simply ignored
as they do affect the dynamics of the M&A process. In this context, one could argue
that a Novartis and Aventis merger, at the very least, would be less likely to suffer the
negative consequences of cultural and organizational difference than a Sanofi and
Aventis merger. Furthermore, Novartis presented itself as a non-threatening merger
partner. An article in the industry trade magazine, Chemistry & Industry, argued that:
Novartis would seem to fit the bill in terms of some of the criteria that Aventis is
looking for in a partner: A bigger financial base, with strong growth outside as well as
inside Europe, and particularly in the US, a complementary portfolio of products and a
similar (or larger) size of organization.37
From a commercial perspective, one could potentially justify both a Sanofi-Aventis and
Novartis-Aventis merger, although the latter appeared likely to engender greater positive
synergies in terms of corporate strategy, culture and R&D complementarities. The financial and trade press tended to prioritize these specific factors when evaluating the combination potential of the various merger scenarios. Nevertheless, the events leading up to the
Sanofi-Aventis merger were defined by a much broader set of stakeholder interests. The
following section explores the impact of discursive socio-political and commercial discourses on the merger process. In particular, I will delineate the competing interests
and strategies of relevant stakeholders as they tried to manufacture a merger outcome
compatible with their specific sectional interests.
Politics and the Merger Process: Negotiating the Unstable Boundary between National
and Corporate Interests
The emergence of discursive socio-political discourses followed Sanofis initial hostile
bid of 45.4 billion euros for Aventis in January 2004. This offer was quickly rejected by
Aventis. What followed was a four-month process of commercial and political strategizing

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J. Mittra

by the companies implicated in the merger; as well as the French and German
governments and their broad range of non-industry based stakeholders. Throughout this
process, commercial narratives around corporate growth, innovation and strategic
fitness coexisted with a diverse range of socio-political factors such as the location of
economic activity and the need to retain national capabilities in pharmaceutical research
and development.
The response of Aventis to Sanofis Hostile bid: exploiting stakeholder concerns
Throughout the speculative period following the rejection of the initial offer, Aventis
adopted the strategy of challenging the commercial logic of a Sanofi merger. It began
by launching an advertising campaign, directed to its shareholders, in the guise of a
fake drug product called Bid Hostile Take Over. The advertisements included warnings such as This medication may be harmful to Aventis shareholders and employees and
This medication can seriously stunt growth.38
Senior management at Aventis constructed a number of arguments against the merger.
In particular, they emphasized the inauspicious economic implications, such as exposure
to financial risk, weakening of R&D capacity and potential loss of jobs at a number of
regional research and manufacturing facilities. Aventiss riposte largely mirrored the commercial problematics identified by the financial and trade press. First, Aventis argued that
loss of patent protection on two of Sanofis major products (which provided 43% of
Sanofis revenues) would negatively affect their own anticipated sales growth. In particular, it was feared that the challenge to Sanofis patent on the blockbuster antithrombotic
drug Plavix, if successful, would significantly diminish Sanofis share price. Aventis
exploited this concern in a brochure entitled Say no to Sanofis Offer, which was sent
to 69,000 employees and 300,000 individual shareholders. Furthermore, Aventis questioned whether Sanofis R&D pipeline had sufficient capacity to compensate for lost
revenue if it was unsuccessful in its patent disputes. Although Sanofi did have a large
number of products in late-stage development, it was unclear that there were enough
potential blockbusters to offset a 43% loss of revenue. Indeed, Aventis predicted that it
would launch six new products between 2004 and 2006, while Sanofi was only expected
to launch three. Aventis also claimed that the offer could have a dilutive impact on US
sales, since Sanofi did not have a strong marketing presence in North America. This, it
was argued, would increase the companys exposure to the less lucrative European
markets. The rhetorical question posed by Aventis management was why its shareholders
should be expected to absorb the risks attached to Sanofis most high-value products and
the companys lack of global marketing capabilities.
Second, Aventis suggested to its shareholders and employees that a Sanofi merger would
likely lead to brutal job losses and severe value destruction. A number of German and
French trade unions were already expressing concern that there may be job losses at
Aventiss R&D plants in Hoechst, Germanywhere 10,000 of the companys 75,000
employees were basedif the merger proceeded. Indeed, the trade unions of both
Aventis and Sanofi held protest demonstrations in early 2004. At Sanofi, action was coordinated through an inter-union body comprising the French Democratic Confederation of
Labour (CFDT), the General Confederation of Labour (CGT) and the General Confederation of Labour-Force Ouvriere (CGT-FO). At Aventis, the CGT demanded that restructuring
of the company be halted. CFDT, on the other hand, was not entirely hostile to closer ties

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485

between the two companies, but did remain vigilant in support of the CGT. All the unions
were concerned that the proposed merger would have a detrimental impact on employment.
They recognized that employment is usually the first target of any major restructuring initiative.39 One might interpret Aventiss strategy as a cynical attempt to galvanize incipient
employee resistance, which can, as Larsson and Finkelstein have suggested, negatively
affect the synergy realization required for a successful merger.40
Igor Landau (CEO of Aventis) described Sanofis initial offer as merely a defensive
response to its own internal problems. He was reported to have stated, They might
need us but we do not need them.41 The management of Aventis believed, rightly or
wrongly, that they had sufficient critical mass to remain an independent discovery
company. Cleaves and Thayer note: The company [Aventis] said it saw few sales or competitive synergies, and significant differences in size and organizational cultures.42
Landau argued that other companies were more suitable partners and that the social
impact of a Sanofi merger was simply unacceptable. Of course, these statements entail
the presumption that positive synergy realization requires economies of sameness,
which is challenged by much of the recent literature on cross-cultural M&A. Indeed, economies of fitness approaches emphasize that the combination of different but complementary organizational strategies, routines and practices can engender positive synergies.43
Furthermore, the argument that Aventis did not need to merge belied the fact that the
company had serious problems with its early-stage pipeline. Aventis had already initiated
a major restructuring initiative in March 2003, resulting in the closure of its Romainville
R&D centre with the loss of 666 jobs in the Paris area, which had itself spurred industrial
action. Aventis had also divested many non-core assets, which signified that the company
was in some difficulty. It may have been the case that Aventis did not find Sanofis initial
offer acceptable and were simply waiting to secure a deal with more favourable terms. If
this was the case, Aventis may not simply have been a passive victim of an aggressive
acquisition.
Not long after Aventis rejected Sanofis initial bid, Frances stock market authority
the Autorite des Marches Financiers (AMF)approved the unsolicited offer. Aventiss
next strategy to defend itself from a takeover was to file a legal action with the Court
of Appeals of Paris, claiming that the terms and conditions of the transaction were unsatisfactory. Aventis hoped to invalidate the AMFs conclusion that the takeover/share
exchange bid was legally acceptable.44 This appeal would eventually fail. In its official
rejection of the bid to the AMF, Aventis argued that the offer was not in the best interests
of either its shareholders (value destruction) or employees (regional job losses) and
directed its management to look for alternative offers. Aventiss concern about loss of
shareholder value has evidential support from many empirical studies of M&A. Berggren
et al.45 suggest that M&A can lead to a loss in innovative capabilities and shareholder
value as the acquirer seeks to rationalize organizational processes, while Danzon et
al.46 have noted that merged companies have a slower growth in operating profit in the
third year following the merger than those companies that do not merge. However, a
recent study by Sudarsanam and Mahate47 suggests that acquisitions often do create
long-term value for the new company and its shareholders. Interestingly, the authors
suggest that M&As that are the outcome of a hostile bid, as was the case with Sanofi
and Aventis, tend to result in superior value creation than friendly or white knight
bids. If true, this study might undermine Aventiss claim that a Sanofi deal would have
negatively affected its shareholders.

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Sanofi promotes the benefits of a merger

In contrast to Aventis, Sanofi was keen to accentuate the benefits of a merger, in both
exploiting R&D complementarities and sustaining national capabilities in innovation.
Sanofis strategy was therefore to conflate the commercial and socio-political benefits
of a Sanofi-Aventis merger. Jean-Francois Dehecq (CEO of Sanofi) publicly stated that
Sanofis bid was not a defensive poison pill (takeover defence mechanism where the
company issues securities to its stockholders and grants them the right to obtain a particular company share more favourably) response to its own internal risk exposure, as Aventis
and much of the financial and trade press were suggesting, but a commercially expedient
and rational strategy to build a globally successful pharmaceutical company. Sanofi was
keen to present itself as a White Knight seeking to preserve Frances national assets
and capabilities in pharmaceutical R&D. This was a rhetorical move clearly directed at
the French government, which was implicitly endorsing Sanofis bid on the grounds
that this merger was of national importance. Sanofi also accentuated the commercial
advantages of a Sanofi-Aventis deal by claiming, This major strategic project will
enable us to take advantage of our exceptional complementary businesses to create a
market leader with strong, sustainable, profitable growth.48 Sanofis strategy was to
emphasize the combination potential of a Sanofi-Aventis merger in terms of company
size, likely market share, R&D investment and preservation of existing high-growth
profits, whilst marginalizing the potentially negative social, political and commercial
implications.
Sanofis role in the merger process was complex and multifaceted, as it exploited
various rhetorical strategies in different contexts to mollify critics and thereby maximize
its chances of securing a favourable deal. Sanofi appeared to tailor a variety of socio-political and commercial arguments to the interests and concerns of specific audiences/stakeholders in order to defend its bid for Aventis. One argument focused on the
economic bottom line, as Sanofi emphasized the two companies complementary
product portfolios, technological assets and market synergies. However, more politically
expedient strategies were also exploited. For example, in order to garner further support
from the French government, Sanofi emphasized that the new company would be quintessentially French, allowing France to retain its existing pharmaceutical assets and future
investment potential. However, in response to the fear of job losses being expressed by
Aventiss German trade unions, Sanofi adopted a different rhetorical strategy; one that
emphasized the European character of the merger. On 28 January 2004, in Frankfurt,
Dehecq stated that the $2 billion of synergies expected from the merger would come
not only from job cuts, but also from positive synergies, such as merging offices.49
Nevertheless, Germanys main trade unions and some senior politicians remained sceptical of these ostensibly positive synergies. They continued to express concern about possible divestment of R&D assets and the French governments apparent complicity in
Sanofis hostile bid. Roland Koch, the Christian Democrat premier of Hesse State,
urged the German federal government to prevent a takeover, which he claimed
appears to be a project co-ordinated with the French government.50 On 2 February
2004, German advertising regulators were forced to prevent a far more cynical strategy
being exploited by Sanofi.51 They alleged that the company, through a German advertising
campaign, was making an indecent attempt to exploit a sick child to support its hostile
bid. Sanofi had constructed an advertisement that used an image of a sick child to convince

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487

the German public that a merger with Aventis would lead to more effective drugs being
developed to cure sick children. This appeared to be a cynical attempt to use a patientcentred rhetoric of hope to convince the German public that the merger would have a
broader public benefit.52 Later, the French government would adopt a similar strategy
by justifying the merger on the grounds of national security. The German regulators,
in this case, instructed Sanofi to stop their advertising campaign immediately.
It is important to note that Sanofis instrumental strategy of exploiting a variety of rhetorical narratives in different socio-political contexts inevitably revealed a number of
inconsistencies. For example, when Novartis intimated that it might table a bid for
Aventis, Sanofi downplayed speculation that the hostile nature of its bid might become
friendly. Dehecq stated that he disagreed with the plans laid down by Aventiss management team. He said: Their strategy is totally different to ours, as are their ideas about
products, countries and research . . . I am defending a project for the new group and
those who agree will be accepted. But it needs to be a clear project.53 Here, the
hostile intent of Sanofi is explicit. The cultural and strategic ethos of the respective companies is purported to be incompatible; the implication being that any merger would
necessitate significant restructuring initiatives to reflect the vision of Sanofi management. However, Sanofi had previously maintained that the two companies shared a
number of complementarities that would allow for positive synergy realization postmerger. Now it was being stated that the two companies did not have complementary strategic approaches to technology, products or marketing. They were culturally and organizationally distinct. Successful integration would therefore require Aventis management to
defer to the preferred strategic orientation of Sanofi.
So far, this paper has focused predominantly on the specific strategies of pharmaceutical
companies and a broad range of industry-based stakeholders as they attempted to justify or
negate the commercial/strategic logic of two quite distinct merger scenarios. Now it is
important to explore in more detail the role of national governments, and the diverse
range of stakeholder groups they represent, in orchestrating this commercially and politically sensitive merger. Here, the discursive and unstable boundary between national and
corporate strategic interests became more conspicuous.
The socio-political context of the Sanofi-Aventis merger: the french government
exploits a broader range of stakeholder interests to support Sanofis Bid
In order to assess the French governments instrumental role in the contentious SanofiAventis merger properly, first it is important to recognize the powerful influence national
politics has traditionally had on corporate restructuring in France. In particular, Frances
broad definition of what constitutes a legitimate and relevant stakeholder, which crucially
includes the government itself, deviates from the more rigidly circumscribed delineation
of stakeholder preferred under Anglo-Saxon economic and political norms.
The contemporary pharmaceutical industry exemplifies the decentralized nature of corporate governance in the modern global economy. From the 1980s, the normative framework of institutional/organizational reform and restructuring has shifted from one where
the nation state retained a strong sphere of influence on its domestic firms to one where the
fate of corporations is left largely to the vagaries of the global market. In the case of crossborder pharmaceutical mergers and acquisitions, any interference with global economic
norms by nation states is met largely with incredulity by industry-based stakeholders.

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Under conventional Anglo-Saxon norms of corporate governance, the only relevant stakeholders are the shareholders of these transnational corporations. However, while it is true
that we no longer live in a world of self-contained national political economic systems,
neither do we live, according to Cioffi, in a world where the state has withered away
under the relentless, intense competitive pressures of international markets identified as
globalization.54 Cioffi notes that despite the rhetoric of fluid global markets and devolved
governance:
National distinctiveness and divergent development paths remain facts of the political economic landscape, and this applies to state institutions and corporate organizations alike. Multinational corporations are thought to effect globalization through
their scale, reach, and investment . . . but the nation state remains the geographical
and organizational base of the corporate firm.55
France, in particular, has tried to preserve certain norms and practices associated with
traditional statist political economy within what is now an ostensibly neo-liberal governance regime. Cioffi rightly notes that conventional Anglo-Saxon corporate governance
theories of the firm poorly understand the very different governance structures in countries
such as France. To be sure, France did rescind many direct interventionist policies that
were incompatible with the requirements of a global free-market, such as bureaucratic
control of finance, discretionary regulatory powers and state ownership of competitive
industries. However, Cioffi argues The state remains a powerful actor . . . and the
legacy of statist institutional arrangements has been a profound influence on subsequent
reforms.56 Indeed, the Sanofi-Aventis merger reveals how direct political intervention
into corporate restructuring has been replaced by more subtle and opaque interventionist
strategies or action from a distance. A CRS report for the United States Congress countenanced this view by stating: Despite significant reform and privatization over the past
15 years, the center-right French government continues to play a larger role in influencing
corporate activity than does the U.S. government. This difference is manifested . . . in its
continuing proclivity to influence mergers involving French firms.57 The report referred
specifically to the Sanofi-Aventis merger, claiming that French interventionist policies
may negatively affect future inward investment to France. Indeed, in his first news conference, Frances Finance Minister, Nicolas Sarkozy, called for a relaxation of EU state-aid
rules to allow national governments to use public funds to enhance the competitiveness of
key companies.58 The CRS report highlights the tension between Anglo-Saxon economic
orthodoxywhere the state plays a marginal role in corporate restructuringand the
more interventionist approaches adopted by countries like France. Nevertheless, it is
important to explore the complexities and underlying logic of Frances alternative
approach to corporate governance and expansive definition of relevant stakeholder.
In the case of the Sanofi and Aventis merger, the French government was keen to ensure
that any acquisition of one of its major companies would not result in the loss of jobs and
erosion of national capabilities in pharmaceutical research and development. Its position
was essentially a riposte to the idea that globalized markets, Anglo-Saxon economic norms
and the putative interests of a narrowly defined group of stakeholders should ultimately
decide the fate of companies. For the French government, the legitimate and relevant stakeholders were not just the shareholders of the respective companies, but also the national
governments, employees and publics that would be affected by the merger. However, even

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government representatives appeared to realize that they could not simply endorse
Sanofis bid on the grounds of national socio-economic interests. In order to legitimise
its position, the government also had to emphasize the industrial logic behind
the merger. This was expressed in terms of creating strategic synergies and product
complementarities, which contradicted much industry data.
The French government deployed its subtle, interventionist strategy in March 2004,
when it was alleged that Aventis was beginning to negotiate a deal with Novartis.
Prime Minister Jean-Pierre Raffarin publicly stated:
The French government is following developments in the global pharmaceutical
industry with particular vigilance. The construction of a large European pharmaceutical group that is profoundly marked by Franco-German relations is strategic
for France. We will be particularly vigilant in ensuring that these developments
do not prejudice our national interest.59
One can identify a variety of dimensions to this rather ambiguous concept of national
interest, all of which were exploited strategically by the government.
First, national interest refers to the retention of jobs and R&D facilities within specific
national borders. Here, the government countenanced the explicit concerns expressed by
the trade unions of both Aventis and Sanofi. However, this attribute of national interest
appeared idiosyncratic in the context of a global pharmaceutical industry. Although
Sanofi was indeed quintessentially Frenchin that its headquarters, primary R&D facilities and marketing operations were based primarily in FranceAventis was a FrancoGerman multinational with globally fragmented R&D and manufacturing facilities and
international marketing presence. Although the French government was perhaps correct
to assume that a Sanofi-Aventis merger, in contrast to a Novartis-Aventis merger,
would allow France to retain many national facilities and jobs, one must question the
true benefit of being labelled an archetypal national champion. Does the Frenchness
or Swissness of a pharmaceutical company really matter when the external operating
environment for firms transcends national boundaries? Industry-based stakeholders
would generally say that it does not matter. For example, although Novartis is formally
registered in Switzerland, the companys core staff based in Basel is drawn from 150
different countries, which indicates the cultural diversity of the company. Aventis is
just as culturally diverse. Only 22% of Aventis shareholders are French and even a
smaller proportion of its employees. Furthermore, Aventis derives most of its pharmaceutical sales revenue from non-European markets. In this context, the Europeaness of
pharmaceutical companies is perhaps more important than the Frenchness. Nevertheless,
the position of the French government, despite being incompatible with the interests and
priorities of company shareholders and management, was not entirely without foundation.
By defending jobs and national assets/capabilities, whether or not these were truly at
stake, the French would claim to be simply representing a broader range of stakeholders
than industry and the financial community are willing to consider legitimate or relevant.
The second conception of national interest exploited by the French authorities was the
national health interest, which also incorporated concern for national security. For
example, Jean-Pierre Raffarin claimed that a Sanofi/Aventis merger was crucial if
France was to be guaranteed continued access to innovative vaccines. He cited the
threat of bio-terrorism as justification for creating a French national champion.60 While

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the defence of national jobs and capabilities was in some sense legitimate, this rhetoric of
national access to drugs in an age of terrorism appeared far more specious. The implicit
presumption in Raffarins statement was that access to vaccines in the case of a national
emergency could only be ensured if the companies developing such products were French.
The governments case was also defended by Jacques Barrot, a French politician and European Commissioner, who stated: Let us remind our critics that the health sector is 80%
financed by the state and accounts for 8% of gross domestic product, which gives the latter
a certain right to take an interest in the market.61 Although Aventis was a world leader in
vaccine research, Frances access to its products would unlikely be affected by the companys geographical location and status as a global, for-profit company. Here it seemed
that the government was adopting a similar strategy to Sanofi by exploiting a rhetoric
of national health interest to defend its preferred candidate for the merger. Furthermore,
this position could be seen as a direct threat to the interests of company shareholders.
A legitimate riposte to the French government was that Aventis shareholders should not
forced to accept a lower bid for the company simply because it is in the French national
interest.
The third concern to be couched within a framework of national interest related more
explicitly to pharmaceutical innovation, productivity and strategic management options.
Although Novartis had signalled a strong interest in purchasing Aventis, which the financial and trade press largely supported, the company claimed that it would formally table a
bid only if invited by Aventis to do so and on condition that the French government
adopted a position of neutrality. Daniel Vasella (CEO of Novartis) claimed that his
company had already entered into informal talks with Aventis. If a Novartis merger proceeded, it was likely that Novartis would take responsibility for Aventiss most lucrative
and high-value products and leave Aventis to focus on developing the more mature, noncore drugs from both groups. Under this possible scenario, one could understand the
French governments opposition. If its primary concern was to retain national innovative
capabilitiesdiscovery, development and marketing of high-value therapiesthen a
Novartis deal did not look promising. On the other hand, the financial and trade press
suggested that the deal would give Aventis a degree of independence by allowing it to
retain its own manufacturing and commercial operations as well as responsibility for licensing and developing its own products.62 Under the Sanofi deal, Aventis would have little
independence and be forced to undergo a thorough rationalization programme. However,
Raffarin continued to support Sanofi as the acquirer most likely to sustain national innovative capabilities. The position was premised on the idea that creating a single national
champion would be far more preferable to allowing a foreign-led acquisition, which can
result in the divestment of core national assets.63 Indeed, the priority Novartis gives to the
exploitation of global rather than national capabilities and markets is indicated in the fact
that it recently transferred its R&D headquarters from Switzerland to the United States.
From a commercial perspective, however, national interests are of marginal significance.
Some industry representatives openly criticized the role of the French government. For
example, Franz Humer (CEO of Roche) warned against political intervention into the
industry. He stated: For me, the words national champion do not link with the
concept of a global industry. I cant relate to nationalistic approaches in this arena.64
On the eve of 25 April 2004, the denouement of this complex merger still appeared
distant. The French government had demonstrated an unwillingness to remain neutral,
Aventis continued to reject Sanofis initial bid, and Novartis was unwilling to formally

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bid for Aventis under the politically sensitive circumstances. However, on 25 April 2004,
the Sanofi/Aventis deal was finally closed. On the day that Novartis declared its intention
to enter formal negotiations, Nicolas Sarkozy, the French finance minister, contacted the
CEOs of Aventis and Sanofi. He told Dehecq (Sanofi) to raise his bid, and told Landau
(Aventis) to begin friendly discussions. Seventy two hours later, the press reported that
a deal was signed to create the worlds third largest pharmaceutical company.65 The
final bid was 53 billion euros, which reflected a combination of cash and shares. The
accepted offer was a 30% premium on average shares price in the month before the takeover, a much better deal than before.
The tension between national politics and corporate strategic interests was a conspicuous feature in the events leading up to the Sanofi-Aventis merger. While the financial and
trade press, as well as insider stakeholders, sought to evaluate potential merger scenarios
using narrowly defined commercial indicators, the French government and its much
broader set of stakeholders were clearly concerned about protecting national capabilities
in pharmaceutical R&D. However, regardless of the veracity of the evidence or legitimacy
of the indicators used to justify or negate particular merger scenarios, the Sanofi-Aventis
deal does raise important questions about industry consolidation, evaluation of crossborder mergers, and implications for pharmaceutical innovation.

Broader Implications of the Sanofi-Aventis Merger

Implications for Life Science Innovation and Strategic Management
Following the announcement of the Sanofi-Aventis merger, the science/trade press were
quick to explicate the implications for pharmaceutical innovation and company management. Perhaps the most significant implication of the merger would be a major rationalization/restructuring programme. A June 2004 article in Nature Biotechnology suggested
that many of Aventiss collaborative agreements and strategic alliances with biotechnology companies would be at risk.66 The report identified at least 200 R&D collaborations
that would be negatively affected, largely because Sanofi prioritizes in-house R&D as
opposed to external knowledge capture. Because Sanofi was expected to save 1.6
billion euros as part of the merger agreement, it seemed likely that Aventiss biotechoriented R&D collaborations would be the primary targets for cost reduction. Denise
Anderson, head of life sciences research at independent brokerage firm Kepler Equities
in Zurich, suggested that Sanofi would seek to aggressively transform R&D at Aventis
by curtailing clinical development programmes and refocusing on late-stage projects.67
Those alliances likely to be terminated, according to Nature Biotechnology, would
include Aventiss gene therapy venture Gencell (Paris) and other vulnerable candidates
that did not appear to be progressing sufficiently. Transkaryotic Therapies (Cambridge,
MA), whose patents were being challenged by Amgen, and Vertex Pharmaceuticals
(Thousand Oaks, CA), which was forced to suspend preclinical testing of pralnacasan,
its rheumatoid arthritis product, after it was found to cause liver damage in animals,
would be the first to be reviewed. The only Aventis partnerships likely to survive were
the less risky late-stage product alliances.
This restructuring programme, which is inevitable after any large-scale merger, would
fundamentally change Aventis traditional strategic management ethos. Again, Nature
Biotechnology stated: Sanofis philosophy to limit external collaborations clashes with

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Aventiss partnering strategy in many diverse therapeutic areas including cancer, metabolic diseases and respiratory diseases, many of them biotech related. The strategic
importance of certain therapeutic areas will decrease, resulting in pressure on the collaborations in these areas.68
Contemporary drug development is very much characterized by a distributed innovation system, in which large pharmaceutical companies are increasingly reliant on the
expertise of outside innovators. Despite increased investment in internal R&D, the industry continues to face the problem of innovation and productivity deficit.69 The general consensus is that pharmaceutical companies are under increasing pressure to build innovative
capacity in new technological areas, construct markets for new drugs and respond to the
positive and negative externalities of their external operating environment. Strategic
options and choices emerge within a context of growing uncertainty. The growth of the
biotech sectorand pharmaceutical companies reliance on its knowledge, expertise
and productshas fundamentally reconfigured the industrial landscape for pharmaceutical innovation. Sanofis interest in scaling back such collaborative agreements and
strategic alliances signals a break from the contemporary trend, but the potential
success of this strategy is still largely unclear. On the one hand, Sanofi-Aventis will
likely lose some innovative capacity in the short term. However, a strategy of focusing
on late-stage products, and narrowing the range of core therapeutic priorities, could potentially be advantageous. The lesson from the success of the smaller biotech companies is
that one can extract value from innovative life science technologies by rationalizing therapeutic foci. Nevertheless, one must question if this is a good strategy for a multinational
company that now ranks third in terms of global sales revenue.
Industry-based stakeholders also emphasized the problem of integrating two very distinct organizational/management cultures, a significant issue often identified in the
M&A literature. A Financial Times report stated: Success or failure hinges on combining
two different cultures . . . Aventis is a classic conglomerate with a culture of compromise,
whereas Sanofi is innovative, fast growing and ruled with an iron fist.70 It was predicted
that post-merger integration would be complex and unpredictable. One possibility was that
Sanofi-Aventis would become increasingly conservative and prioritize innovations closer
to market, rather than invest in more innovative ventures and accept their associated risks.
From a commercial perspective, the Sanofi-Aventis merger appeared to have far greater
implications for pharmaceutical innovation, management and marketing than would
have emerged from a Novartis deal.
Implications for Industry Consolidation and M&A Theory
Over the past decade, the pharmaceutical sector has been characterized by waves of
merger and acquisition activities71 and the emergence of new strategic alliances
between incumbent pharmaceutical firms and emerging biotechnology companies. The
impetus for these complex and varied activities has been driven, in part, by the need of
bureaucratic, R&D intensive firms to overcome innovation deficit and bolster their pipeline of new drug candidates. The balance of power between different types of companies
and organizations within the sector has slowly been shifting, and there is now significant
debate about the future of big pharma, the challenges facing the smaller biotech sector and
the sustainability of continued industry consolidation.72 The drive for sufficient critical
mass, and uncertainty about its contribution to innovative and market gains, raises

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important questions about the commercial viability of a highly bureaucratized big pharma
sector and its dependency on further waves of M&A activity or, alternatively, on demergers and fragmentation of assets.
The Sanofi-Aventis merger may represent the start of a new trend in the industry, one
where medium sized companies become increasingly ambitious and attempt to compete
with the larger incumbents by aspiring to acquire the same level of critical mass.
Again, one must wait and see if this strategy proves successful for Sanofi-Aventis in
the long-term, but it is an open question as to whether similar sized companies will
now exploit a similar strategy to Sanofi. It is important to remember that Sanofi aggressively pursued Aventis because of its own internal risk profile and potential exposure as
an acquisition target. The question is whether other medium sized companies facing
similar problems will view Sanofis apparent success as reason to imitate the strategy.
If so, this may contribute to a significant reshaping of the sector in coming years.
The case study of Sanofi-Aventis does have implications for how we theorize pharmaceutical mergers and acquisitions and begin to evaluate their success. In particular, it illustrates the difficulty, identified by part of the M&A literature, in establishing appropriate
evaluative criteria that encompasses not only conventional economic indicators but also
socio-political factors. Although crude data on company size, geographical range, technological/product complementarities and marketing capabilities is important, combination
potential and synergy realization is also determined by the ability to integrate different
organizational and strategic cultures. Indeed, missing from much of the orthodox M&A
literature is recognition of the discursive socio-political discourses that often shape
merger decisions. In the case of Sanofi-Aventis, national political interests emerged as
an alternative rationale to the business as usual economic orthodoxy constitutive of
Anglo-Saxon corporate governance. This then begs the question of whether putting politics before business rationality, by representing the interests of a broader range of stakeholders, is necessarily regressive in the most negative sense. Is political expediency, and
the defence of national capabilities and interests, always unjustified? It is possible that
Frances strategy will work at a European level, in that it might help drive the European
pharmaceuticals sector and enable it to compete more effectively with the dominant US
firms. Of course, the evidence suggests that a merger with Novartis would equally have
helped drive European innovation. Nevertheless, at the national level, the SanofiAventis merger did allow France to retain core R&D facilities and the jobs associated
with them. France clearly benefited politically by ensuring that national locations of economic activity were preserved. This rationale was, of course, unacceptable to industry and
the financial community, which was concerned about the location of pharmaceutical
research and innovation in a strictly managerial/strategic sense. The tension between
national strategic interests and conventional corporate governance may therefore continue
to play a significant role in future industry mergers.
Conclusion
The merger of Sanofi and Aventischaracterized by industrial conflict, the needs of political expediency and the strategic interests of a broad range of stakeholderschallenges
the notion of simple rational management consensus in large-scale merger processes.
The case study brings into question the role of national governments in commercial innovation, the extent to which strategic/knowledge synergies ultimately determine merger

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decisions, and the sustainability of continued industry consolidation. If governments

choose to prioritize national interests and indirectly influence the modalities of corporate
restructuring, what implications does this have for both pharmaceutical innovation and the
consolidation debate? If a combination of potential and synergy realization, in the strict
commercial sense, no longer constitutes the primary evaluative criteria for merger and
acquisition decisions, what implications does this have for both companies and the
nations in which they are still embedded? One could argue that political expediency
for both national governments and multinational corporationshas always played a significant role in merger and acquisition processes. Indeed, Sanofi and Aventis were just
as willing as the French government to exploit political rhetoric to defend their sectional
interests. Nevertheless, it is important to factor the socio-political economy of mergers
into any evaluative framework.
A number of factors play an instrumental role in any large-scale pharmaceutical merger.
All companies face a variety of internal and external challenges that can affect their ability
to successfully discover, develop and market innovative drugs. The status of a companys
product portfolio, R&D strategies, shareholder agreements, patent disputes, technological
capacity/capabilities and therapeutic foci can determine the need to engage in large-scale
merger or acquisition activities and the type of partner likely to engender positive
synergies. However, this case reveals that the complexities and nuances of the sociopolitical context, particularly the alternative evaluative criteria adopted by a broader set
of stakeholders, can result in mergers that appear less than ideal on strictly commercial
grounds. Although Sanofi-Aventis is now a top four global pharmaceutical company,
we will have to wait and see if it can create long-term productivity and shareholder
value and, as the French government hopes, truly enhance national capabilities in
pharmaceutical R&D.73

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73. I would like to thank my colleagues, Prof. Joyce Tait and Prof. David Wield for their constructive comments on early drafts of this article. I would also like to thank the anonymous reviewers for their advice
on how to improve the paper. This article emerged from an ESRC funded projectInnovation Processes
in Life Science Industrieswithin the ESRC Innogen Centre, University of Edinburgh.