1 Institut Merieux S.A. of France said the Canadian government raised an obstacle to its proposed acquisition of Connaught BioSciences Inc. for 942 million Canadian dollars (US$801.6 million).
2 Merieux said the government's minister of industry, science and technology told it that he wasn't convinced that the purchase is likely to be of 'net benefit' to Canada.
3 Canadian investment rules require that big foreign takeovers meet that standard.
4 The French company said the government gave it 30 days in which to submit information to further support its takeover plan.
5 Both Merieux and Connaught are biotechnology research and vaccine manufacturing concerns.
6 The government's action was unusual.
7 Alan Nymark, executive vice president of Investment Canada, which oversees foreign takeovers, said it marked the first time in its four-year history that the agency has made an adverse net-benefit decision about the acquisition of a publicly traded company.
8 He said it has reached the same conclusions about some attempts to buy closely held concerns, but eventually allowed those acquisitions to proceed.
9 'This isn't a change in government policy; this provision has been used before,' said Jodi Redmond, press secretary for Harvie Andre, Canada's minister of industry, science and technology.
10 Mr. Andre issued the ruling based on a recommendation by Investment Canada.
11 Spokesmen for Merieux and Connaught said they hadn't been informed of specific areas of concern by either the government or Investment Canada, but added they hope to have more information early this week.
12 Investment Canada declined to comment on the reasons for the government decision.
13 Viren Mehta, a partner with Mehta & Isaly, a New York-based pharmaceutical industry research firm, said the government's ruling wasn't unexpected.
14 'This has become a very politicized deal, concerning Canada's only large, world-class bio-research or pharmaceutical company,' Mr. Mehta said.
15 Mr. Mehta said the move that could allow the transaction to go ahead as planned could be an out-of-court settlement of Connaught's dispute with the University of Toronto.
16 The University is seeking to block the acquisition of Connaught by foreign interests, citing concerns about the amount of research that would be done in Canada.
17 The university is considering a settlement proposal made by Connaught.
18 While neither side will disclose its contents, Mr. Mehta expects it to contain more specific guarantees on research and development spending levels in Canada than Merieux offered to Investment Canada.
19 Some analysts, such as Murray Grossner of Toronto-based Richardson Greenshields Inc., believe the government ruling leaves the door open for other bidders, such as Switzerland's Ciba-Geigy and Chiron Corp. of Emeryville, Calif.
20 Officials for the two concerns, which are bidding C$30 a share for Connaught, couldn't be reached for comment.
21 French state-owned Rhone-Poulenc S.A. holds 51% of Merieux.

Both Merieux and Connaught are biotechnology research and vaccine manufacturing concerns .
concerns
What are the concerns?