By Laurence Frost
The Associated Press

PARIS - The board of Franco-German drug maker Aventis SA accepted a new offer from Sanofi-Synthelabo SA on Sunday in a deal that would merge France's two largest drug makers and create the world's third biggest pharmaceutical company, authorities said.

The deal, which ends a three-month takeover battle, corresponds to France's "strategic interests," Prime Minister Jean-Pierre Raffarin said.

If approved by shareholders, the merger would create the world's No. 3 pharmaceutical giant behind U.S. behemoth Pfizer Inc. and Britain's GlaxoSmithKline PLC.

Raffarin, hailing the deal, said in a statement that it will keep jobs and decision-making of the drug companies in France.

Health Minister Philippe Douste-Blazy noted that the tie-up would give France a leading position in pharmaceuticals.

Sources close to Aventis had said earlier Sunday that the board of Aventis, which called a meeting, accepted a sweetened takeover bid from smaller rival Sanofi.

The sources, who spoke on condition of anonymity, said Sanofi had increased its offer to close to $83 per share, from $68.80 that its previous unsolicited bid was worth on Friday.

Switzerland's Novartis AG said in a statement that it had ended discussions on a possible merger with Sanofi, citing the "strong intervention of the French government."

Sanofi had increased its offer under pressure from Novartis, which on Thursday accepted Aventis' invitation to enter talks on a friendly merger. However, no formal offer was ever placed on the table, sources said, speaking on condition they not be identified.

The takeover battle was sparked after Aventis - which makes the anti-thrombosis drug Lovenox - urged shareholders to reject Sanofi's Jan. 26 hostile offer and instead asked Novartis to enter talks on a friendly merger.

France pressured to keep Novartis out of the deal, the company said.

Raffarin underscored the importance of keeping the merged company French-based.

"The ambition of France is to participate in the emergence of strong industrial poles, the only real answer to delocalizations that threaten our economies and our research," he said.

Douste-Blazy, the health minister, said earlier that any other outcome would leave Sanofi itself vulnerable to takeover, the minister warned.

"If it doesn't buy another company, a foreign bidder will come along," he said.

Industry Minister Patrick Devedjian had insisted hours before the announcement that France remained "legally" neutral even while rooting for the Sanofi bid.

"When you watch a football match, you can support one side or the other," Devedjian said in an interview with the television station LCI. "But you're not the referee."

Devedjian's boss, Finance Minister Nicolas Sarkozy, succeeded in bringing Aventis CEO Igor Landau and his Sanofi counterpart Jean-Francois Dehecq together on Friday for their first direct talks since Dehecq unveiled his hostile bid three months ago.