Novartis will start merger talks with Franco-German Aventis to help it fight off a hostile bid from Sanofi-Sythelabo, the Swiss pharmaceuticals group said this morning.
A combination of Novartis and Aventis would create the world's number-two drugmaker behind Pfizer of the United States. It would also leave Sanofi out in the cold and potentially vulnerable to takeover bids itself.
Novartis said it was not sure it could cement a deal, but its decision to start formal negotiations still surprised investors, many of whom had expected it to walk away after strong signals from French officials in support of Sanofi's €46.5 billion ($54.92 billion) stock-and-cash bid.
Shares in Novartis fell 2.7 per cent by 9.00 a.m. on concerns it might get sucked into a costly bid battle, while Aventis climbed 3.5 per cent and Sanofi added 2.9 per cent.
Aventis invited Novartis into talks earlier this month, the first condition for talks, but the Swiss firm has said it would start negotiations only if the French government was neutral.
French government officials have signalled they would favour an all-French deal in what they see as a strategically important sector.