By Pamela Barbaglia and Maiya Keidan
LONDON (Reuters) - Talks between Actelion (S:ATLN) and Sanofi (PA:SASY) are making progress, despite investors' fears that the Swiss biotech firm's chief executive and founder might not want to sell, a person with direct knowledge of the situation said on Tuesday.
The source said Actelion had now reached a point where the company needed to sign a deal and it could not call off negotiations with the French drugmaker without triggering an investor rebellion demanding the overthrow of its board.
Actelion's share price has fallen more than 7 percent in the last two days as a hoped-for takeover valuing the Swiss biotech firm at up to $30 billion (24.3 billion pounds) has failed to emerge, frustrating hedge funds that have bought heavily into the stock.
"You can count us in to the growing camp of hedge fund discontent about this process," said Michael Wegener, managing partner at Hong Kong-based Case Equity Partners. "What is it that's wrong?"
Actelion's co-founder and Chief Executive Jean-Paul Clozel has fended off previous attempts to take over the Swiss firm, rejecting approaches by U.S. and European rivals as well as resisting pressure from U.S. activist hedge fund Elliott Advisors to find a buyer five years ago.
The silence in recent days has unnerved investors who had been looking for a deal before the Christmas break, but the source said it would be "neither impossible nor unusual" to see a big transaction coming between Christmas and New Year's Eve.
U.S. healthcare group Johnson & Johnson (N:JNJ) abandoned its efforts to buy Actelion last week but the source said it may still come back with a counter-offer, depending on what terms are agreed with Sanofi.
Other sources familiar with the situation said Sanofi had stepped in soon after J&J made its initial approach with an all-cash offer.
The French firm tried to win over Actelion's board with a higher bid containing cash and a so-called contingent value right (CVR), they said.
The CVR - similar to one that Sanofi provided when it bought U.S. rare diseases firm Genzyme for $20 billion in 2011 - would pay out if certain Actelion drugs live up to commercial expectations.
Investors said any offer where the CVR represented more than 20 percent of the overall value of the deal would not go down well with shareholders.
Sanofi and Actelion declined to comment.
After being trumped in August by Pfizer's (N:PFE) $14 billion bid for U.S. cancer drug company Medivation, Sanofi remains hungry for deals to broaden its drug line-up as its key diabetes business comes under pressure.
Actelion's drugs for treating pulmonary arterial hypertension, a life-threatening form of high blood pressure in arteries connecting the heart and lungs, would dovetail with its Genzyme rare diseases unit, analysts believe.
The Swiss group was co-founded in 1997 by 61-year old Clozel and his wife, Chief Scientific Officer Martine Clozel.