PARIS -- Sanofi SA, the French pharmaceutical company that has been selected by the board of the A.H. Robins Co. as its merger partner, is feeling its size -- that is to say, a little on the small side.
True, in only 13 years Sanofi has been transformed from little more than a gleam in the eyes of executives at its parent company, the French oil and chemicals giant Elf-Aquitaine, into a pharmaceutical, perfume and biotechnology conglomerate with interests in 160 companies in more than 100 countries.
To do so, it has gobbled up all or part of some 300 companies -- many of them family-owned businesses, but some more substantial -- leaving it with an organizational chart a yard long in single-spaced type.
But that acquisitiveness is as much a symptom as a solution. Sanofi, No. 2 in pharmaceuticals in France and No. 8 in Europe, is a 98-pound weakling in an international industry where bigness is increasingly a prerequisite for success. In seeking to buy Robins -- whose litigation debts in connection with the Dalkon Shield contraceptive device would be more than Sanofi's entire market capitalization -- the French company is hoping to merge itself into a Charles Atlas.
"For pharmaceutical firms, it all comes down to new products," said Benoit Jousse, an analyst with Morgan Grenfell, a London brokerage house. "Research and development costs more and more every year. The key is size. You need to be able to spread R&D costs over more revenues."
With the selection of Sanofi by Robins, Sanofi beat out its American rivals, Rorer Group Inc. and American Home Products Corp., in the bidding for Robins. Sanofi's offer differs from the other two in that the French company is seeking only a 60 percent controlling interest in Robins, while the other offers seek a full takeover of the company.
The competition grew more heated last week, with Rorer sweetening its offer. Robins had been under orders from a federal bankruptcy court judge in Richmond to select one of the proposals by next Wednesday.
The company traces its birth back to 1973, when government-owned Elf-Aquitaine gave two of its executives, Rene Sautier and Jean-Francois Dehecq, seed money of 1 billion francs (about $185 million at current exchange rates) and told them to "build an empire," in the words of one newspaper here. Elf-Aquitaine's chemical division was well established, but its presence in the important pharmaceutical end of the business was virtually nil.
Within three years, Sanofi had bought all or part of 13 companies, ranging from the Yves Rocher perfume group to a drug laboratory in Spain. The company solidified its international position with its 1980 purchase of Clin-Midy laboratories and leaped into the U.S. market in 1981 with a joint marketing venture with American Home Products, one of the Robins suitors. It became, among other things, the world leader in the production of sunflower seeds and gelatins for use in foods, drugs and photography.
Those acquisitions have not always been pleasing to analysts. "It's into too many things, and doesn't have the critical size in any of its divisions," Jousse said. "In perfumes, the have 1 billion francs a year in revenue, but that's far too small. In drugs they are far too small."
He blames this in part on the company's status as a 60 percent-owned unit of Elf-Aquitaine. "Because it is a part of Elf-Aquitaine, they haven't really been free to do what they want to do."
The company's pharmaceutical mainstay is a drug called Ticlid, which helps reduce hardening of the arteries and is awaiting approval from the U.S. Food and Drug Administration. It also has developed and marketed an AIDS test, Elavia. But otherwise, analysts say, the company has no particularly promising drugs under development.
Sanofi's revenue has grown at an unspectacular annual rate of about 10 percent, to $2.3 billion last year, while net profit last year was $92.7 million, up just 3 percent from 1985, mostly because of the dollar's fall. "They are not as profitable as they should be," Jousse said.
Sanofi's most recent major acquisition was in April, when it bought two U.S. units of American Cyanamid: Jacqueline Cochran and La Prairie, which make cosmetics and perfumes, including the Nina Ricci brand. And it has said repeatedly that it was in the market for a big U.S. company.
There are two reasons. The United States is the largest market in the world for pharmaceuticals -- any truly international drug company needs a strong American retail and prescription base.
And for companies like Sanofi and Rhone-Poulenc SA, the No. 1 French drug maker, there is an added pressure: The French government, which reimburses most of the costs of prescription drugs, severely restricts profit margins on pharmaceuticals. This, in turn, reduces the amount that can be plowed back into R&D, and is one of the reasons for Sanofi's push into perfumes and cosmetics.
"The American market is also the one with the best profit margins," said Herve Guez, an analyst with the Paris-based brokerage Schelcher-Dumont-Prince. "At the end of 1986, American laboratories earned an average net margin of 14 percent of revenue, while the French got only 2 or 3 percent."
Then there is the dollar. Its fall from more than 10 francs in 1985 to about 5.4 francs last week has made American companies incredibly cheap for foreign buyers. Coupled with the stock market plunge, which slashed share prices across the board, the temptations to buy have been irresistible.
The only problem for foreign buyers has been the dearth of sizable American drug companies to buy. The single exception has been Robins. Its products, including Robitussin cough syrup and ChapStick lip balm, helped to cancel out some of the stigma arising from the Dalkon Shield. In addition, analysts say that Robin has several potentially hot new drugs under development. And its U.S. and international retail and precription drug marketing networks would make a good fit for foreign buyers like Sanofi, which is weak in these areas.
Sanofi's president, Sautier, said his company began considering an offer for Robins several years ago, before the Richmond company, faced with billions of dollars in Dalkon Shield claims, filed for protection from its creditors under Chapter 11 of the U.S. bankruptcy laws.
But uncertainties about the bankruptcy and Dalkon Shield litigation, questions about the size of the fund to cover potential damages and how the fund would be financed made a formal bid impossible. Less cautious were American Home Products -- which offered in February to buy Robins for an estimated $1.8 billion to $2.2 billion, withdrew the offer, and then reentered the bidding last week -- and Rorer, which was forced to modify its plans a couple of times.
The uncertainty largely dissipated in mid-December, when Judge Robert Merhige Jr. ordered that $2.48 billion be set aside to settle the claims. Sautier said that is when Sanofi decided to move.
Company officials say that under their plan, Sanofi would acquire 60 percent of Robins in return for a $500 million cash payment and a guarantee that the trust fund will be paid. Under the plan, Robins would contribute at least $100 million in cash to the fund; the rest would be financed with letters of credit backed by Sanofi.
Sanofi says it would finance that $500 million payment with a nest egg of about that amount, including its sale of a 33 percent share of the French subsidiary of American Home Products. It also issued 1 billion francs worth of stock last spring.