PARIS AP The merger of Hoechst AG of Germany and France's Rhone-Poulenc SA will create an international drugs giant rivaling world leader Merck and Co. But analysts warn that in this case bigger may not necessarily be better. Hoechst and Rhone-Poulenc's combined life sciences company to be called Aventis will have annual sales of around dlrs 20 billion spanning pharmaceuticals agricultural chemicals and animal health products the companies said Tuesday outlining their long-rumored merger plans. Company executives were upbeat saying annual cost savings of dlrs 1.2 billion over three years will boost profits until new products begin hitting the market. But the new company may have trouble producing enough new lucrative drugs to match competitors' profitability. In a news conference held in Strasbourg where the new company will be based the two companies said creation of the 50-50 joint venture is a first step toward fully merging the companies within three years. ``Unlike what has happened to other companies in our industry the creation of Aventis provided we obtain all the necessary authorizations will be translated into reality'' Rhone-Poulenc Chairman Jean-Rene Fourtou said. Despite concerns over profitability and research capabilities the combination will allow the companies to improve their marketing muscle in the United States. And Aventis will be able to negotiate better deals with U.S. managed care providers observers said. ``Each company could not have found a better partner in terms of size culture and compatibility'' said Ian Broadhurst a pharmaceutical analyst at Enskilda Securities in London. Seeking to calm investors' worries over the company's merger plans Rhone-Poulenc executives said they would trim the new company's debt burden over the next four years while expanding in the United States. Still while Aventis will be able to compete with the top drug companies in terms of revenue industry leaders such as Merck Britain's Glaxo Welsome PLC and Switzerland's Navartis AG are still ahead when it comes to profitability and research productivity. ``Hoechst and Rhone-Poulenc share the same problems low profitability and underpowered research and development portfolios'' said Paul Diggle a drug analyst with Societe Generale in London. Also analysts said cost-cutting projections are below average for mergers in the industry shedding further doubt on the companies' ability to quickly boost profit. The merger announcement comes on the heels of a flurry of major cross-border transactions including Daimler Benz AG's acquisition of Chrysler Corp. Deutsche Bank AG's purchase of Bankers Trust and French oil company Total SA's agreement Tuesday to take over the Belgian petrochemicals company Petrofina SA. And within the pharmaceutical sector the Hoechst-Rhone-Poulenc link-up is likely to encourage more matchmaking. While a series of drug companies have recently decided against mergers the Franco-German combination could renew the trend. Most imminently France's Sanofi SA and Synthelabo SA are said to be in advanced talks on their own marriage. ``This deal starts to change the scene'' Diggle said. ``Drug companies in the U.S. and elsewhere will be gently moving in the direction of more consolidation.'' But some warned that strong labor unions in Germany and France could hamper merger plans for Hoechst and Rhone Poulenc. ``France and Germany are particularly difficult places to cut costs'' said Broadhurst. Unions in France and Germany have been critical of the merger so far fearing that cost cutting will lead to layoffs. Hoechst employs 118000 workers and Rhone-Poulenc employs 68000. Rhone-Poulenc shares finished 7 percent lower at 263.4 francs dlrs 46.2 as investors expressed concern over prospects for the new company. sp-dj-jn APW19981201.1183.txt.body.html APW19981201.1506.txt.body.html