Glaxo is an €8bn buyer for Bayer

GlaxoSmithKline, Europe's biggest drugs company, is poised for a dramatic bid to buy the pharmaceutical division of Bayer, the company that invented Aspirin.

Sources close to GSK have indicated that the group, headed by Jean-Pierre Garnier, is in "significant talks" with the German company and would be keen to make its move while Bayer's shares are languishing near seven-year lows having fallen 40 per cent this year.

Gaining control of Bayer's drugs operation – which had sales of around €4.5bn (£3bn) – would cost around €8bn but would give GSK several products, including the anthrax drug Cipro, and a boost to its drugs development pipeline.

GSK's ambitions are understood to have stemmed directly from last week's admissions by Bayer that it would consider ceding control of its drugs business – the operation that formed the core on which the wider chemicals and biotechnology business was built.

The German group's willingness to take on a majority partner on the pharmaceuticals side is a complete reversal of previous policy and for many analysts signals a massive collapse of confidence. Just a few months ago, Bayer's management was talking firmly about taking on only a minority partner.

Allowing that it would "completely change the face of Bayer", the company's chief executive, Werner Wenning, confirmed that Bayer is already in "good and constructive discussions" about a partnership that would leave control in another group's hands.

City analysts, who believe GSK makes by far the most obvious suitor for Bayer's drugs operation, say it is more Mr Garnier's style to put an outright bid on the table now and see what happens next. The other big name touted as a possible bidder is the Swiss company Roche.

GSK's interest in Bayer does not come out of the blue. The two companies have already formed marketing partnerships to sell new drugs. Of these, the biggest involves Levitra, an anti-impotence treatment that is expected to compete for market share with Pfizer's Viagra when it is launched early next year.

GSK, whose shares have also taken a major beating this year, has suffered from market scepticism over the state of its drugs pipeline. Like many of its sector rivals, GSK has faced the expiry of several of its blockbuster patents, and a relative lack of new drugs to cover them. In a briefing with big investors last week, GSK is understood to have said that 2003 was a crunch year for the pipeline, and that it would undertake strategic measures if things did not improve.

Those present took this to mean GSK was probably already on the lookout for a partner. "I have no doubt that Glaxo is right at the front of the queue of companies talking to Bayer," said one City drugs analyst. "It would by no means be a perfect deal, but Bayer is trading at levels where Garnier could legitimately use the word 'bargain'."

Other analysts strongly criticised the chance of a GSK bid, arguing that any enhancement to GSK's pipeline would not be worth the cost.

The rapid decline of Bayer stems mainly from a crisis involving Baycol, the cholesterol drug driving Bayer's pharmaceutical growth and forecast to produce €2.5bn in sales. The drug was withdrawn completely in August last year after 50 deaths were linked to it. The company is facing 5,700 lawsuits relating to Baycol and GSK sources have implied that any deal must include a "total ring-fencing" of that episode.