Markets & Finance

Sanofi-Aventis Falls on Drug Delay


From Standard & Poor's European MarketScope

Britain:

Royal Bank of Scotland was down £0.21 to £16.78 after the Financial Times reported that the company is considering a substantial investment in the Bank of China in the wake of last week's announcement by China's second biggest bank that it was negotiating with about ten potential foreign strategic partners. It is understood that the bank is prepared to pay up to $4 billion for as much as a 20% stake in the Bank of China, but it faces competition from several big rivals. Banks are targeting Asia because of its rapid rates of economic growth, and China is one of the most attractive markets because of the size of the country's population. Under Chinese law, foreign investors can own up to a quarter of a Chinese bank, with a single investor holding no more than 20%. The company declined to comment directly on negotiations, saying it was unable to comment on market speculation. Dresdner Kleinwort Wasserstein said it believes the company has neither the appetite nor the capital for such a deal.

Boots drugstore chain was up £0.15 to £6.49 a day after the Sunday Telegraph reported that Barry Clare, the former head of the company's healthcare business, is understood to be looking at leading a bid for the division. Clare is believed to have been contacted by several private equity firms to front a bid after the group announced last week that it was putting Boots Healthcare International (BHI) up for sale with a price tag of about £1.25 billion. The decision to sell BHI came last week after the health and beauty retailer issued its third profit warning since Richard Baker took over as chief executive in September 2003. Clare quit as marketing director of Boots more than two years ago after heading BHI for a decade.

Engineering company Smiths Group was down £0.11 to £8.79 after Morgan Stanley initiated with an overweight rating and a £8.79 target. The broker argued that the company's asset base is capable of supporting 10 to 11% annual earnings per share growth through to 2010, above the 8% growth currently priced in by the market. The broker said the company is a good stock to own in order to avoid the problems of the European aero and defense sector, as it has a large U.S. operating base.

France

Drugmaker Sanofi-Aventis was down €0.85 to €66.65, after the Food and Drug Administration issued an "approvable letter" to the company for a new version of its Ambien sleep aid pending the resolution of certain issues. The company said the FDA's questions regarding Ambien CR are not related to the drug's safety or its effectiveness. The drug's launch, which was expected in the U.S. in mid-2005, now faces delay of about three months. Separately, Credit Suisse First Boston downgraded the company to neutral from outperform. The bank noted that shares have risen 15% already this year to settle just above its €66 target price. It added that the strong share price rise may tempt block sales by Total, which holds over 12% in the company.

Rodriguez was down €2.79 to €42.25, after Deustche Bank placed 1.25 million shares in the yachting group, around 10% of capital, on behalf of the Rodriguez family, according to Reuters.

Aerospace giant Eads, the parent of Airbus, was down €0.28 to €23.45, after a European Commission spokesperson denied a report in today's Financial Times that the European Union had offered to delay the payment of launch aid for the Airbus A350 to avoid a litigation battle with Washington over aircraft subsidies. Both sides have said they are ready to negotiate beyond the deadline. According to the French newspaper La Tribune, the current Airbus chairman, Noel Forgeard, is looking outside the group to find a replacement when he becomes the company's co-president. The paper added that Forgeard has taken this decision due to the German opposition to candidate Gerard Blanc, the company's current managing director. The daily adds Forgeard needs to find a replacement before the company's annual general meeting on May 11, and said that Forgeard already offered the post to Air France executive, Pierre-Henri Gourgeon, who refused. The Sunday Times reported that Boeing plans to launch in few months a new version of the 747 called 747 Advanced.

PSA Peugeot Citroen was up €0.56 to €49.75, after Ford Motor cut its fiscal-year 2005 forecast and warned that it no longer expects to reach its 2006 profit target of $7 billion, due to higher raw material costs and fierce competition.

Germany

Chipmaker Infineon was down €0.09 to €7.38, after Japan's Elpida Memory issued a profit warning after cutting its year-to-March net profit forecast to 8.1 billion Japanese yen from 12 to 16 billion Japanese yen. The Japanese chipmaker blamed a larger than expected drop in DRAM prices and a loss at its U.S. subsidiary.

Commerzbank was up €0.41 to €17.91, after Citigroup upgraded the company to buy from hold and increased its target to €21 from €19. The broker said German banking conditions are still tough, so self-help efforts remain key to lifting returns. The broker said the company is more visibly tackling problem areas, such investment banking and corporate relationships rationalising - to lift return on equity. The broker said that at 90% of book value, the company is the cheapest bank in its universe. It further noted that current revenue and earnings momentum leaves the company comfortably ahead of current 2005 targets.

Steelmaker Salzgitter was down €0.36 to €16.28, after Goldman Sachs initiated coverage with an outperform rating and a €11.70 price target. The broker said the company's strong operating performance and its recent disposal of V&M, the steel tube maker, have increased its share price by 55% over the past 12 months. The broker noted that the shares are trading at historic peak valuation, and believes the price may have peaked. The lack of projects undertaken by the company means that in contrast to its Austrian peer Voestalpine, it will show little organic growth. As the broker expects steel prices to fall in 2006 and 2007, the only uplift to equity valuation can occur by paying down debt. The broker said that given the company's strong cash position, it believes the risk comes if the company were to announce a large distribution programme to investors, either via dividends or share buybacks.


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