Roche, finally, gets Ventana

Ventana agrees to become a $3.4 billion part of Roche, but commands a pricey $89.50 per share

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BASEL, Switzerland—After more than seven months of tender offers, Roche has finally worn down Tucson, Ariz.-based Ventana Medical Systems and settled on a definitive merger agreement to acquire Ventana for $89.50 per share—an aggregate of approximately $3.4 billion on a fully diluted basis.Or, was it the other way around? Some would argue that Ventana was the one who wore Roche down, since the Swiss company had staunchly stood by the offer of $75 per share it set out on June 27, 2007, and wouldn't budge from it until very recently, extending the deadline for Ventana to accept the offer of $75 per share four times.In fact, in July, several weeks after commencing the tender offer and a couple weeks before it made the first deadline extension, Roche Chairman and CEO Franz B. Humer said, "Roche continues to believe that its offer of $75 per share in cash is a full and fair offer and a unique opportunity for Ventana's stockholders to receive value now that reflects Ventana's current business and full future potential."To a large extent, Roche may have boosted the perceived value of Ventana and helped encourage the latter company to dig in its heels, suggests Dr. Kenneth G. Krul, a senior analyst for Kalorama Information. When Roche made the tender offer in June, Ventana was trading at about $52—and after the offer, Ventana shares shot up to about $77, Krul notes.
"Ventana's management was calling the Roche offer too low because the company's market price was above that. It would probably still have been at $52 if Roche hadn't made the tender offer," he says. "Still, Ventana rejected the offer four times and shareholders weren't turning in their shares…mostly because the market price was higher than $75."
Jack Shuler and other major Ventana shareholders have been seeing a lot more potential in the company than anybody else, Krul believes, though he admits: "It's a good operation and spends as much on R&D as it makes after interest and taxes. Growth has been good, but to me the histology field has always been limited."
With the exception of image analysis, "which has a ways to go," Krul says, automated tissue processing can go only so far in the clinical setting. "It will probably have a lot larger market if it can be adequately adapted to drug discovery in a broad sense. That may be what Roche sees in it," Krul suggests.
"We are very pleased that we were able to reach an agreement with Ventana. We believe that our offer provides significant value to Ventana's shareholders and that this acquisition ideally complements Roche's strengths," Roche's Humer said following the merger agreement. "Our combined company will be uniquely positioned to further expand Ventana's business globally and together develop more cost-efficient, differentiated and targeted medicines."
Christopher Gleeson, Ventana's president and CEO, will continue as CEO of Ventana's business following completion of the transaction and become a member of the Roche Diagnostics Executive Committee. Ventana will remain based in Tucson, Ariz., and operate under its own name as a dedicated business unit under the Roche Diagnostics umbrella—and its employees will become part of the combined company, as there is very little overlap in the combined employee base, according to Roche.
As for Gleeson, he said that Ventana's board had "been dedicated to ensuring that any strategic value creation opportunities with Roche or other third parties would adequately reflect the inherent value of the company, its steady growth momentum, and the magnitude of potential synergies in a combination. After a full evaluation of its strategic alternatives and thoughtful consideration, as well as consultation with our outside financial and legal advisors, our board believes that the transaction with Roche at $89.50 per share is in the best interests of our shareholders."
"I am confident that Ventana's unique position at the forefront of the emerging field of companion diagnostics and its robust growth in both advanced staining and primary staining ideally complements the strong position of Roche in the field of diagnostics and oncology over the long term," Gleeson added.
Aside from these prepared comments, neither side is saying much of anything, though in a presentation to media on Jan. 22, Roche noted in its rationale for the acquisition that it is keen to enter the fast-growing tissue diagnostics market segment, that it wants to leverage Roche's distinctive capabilities and global position in diagnostics, and that it wants to position itself as the worldwide leader in high-tech healthcare by uniquely combining therapeutics and diagnostics.
"It's hard to judge Roche," Kalorama's Krul says. "They've had at least three major acquisitions this past year, all of which can be melded with Ventana's technology to provide advanced drug discovery approaches and, eventually, personalized medicine testing—but this isn't an overnight prospect. And Roche is putting over $1 billion into European investments in biotech and related fields. All of this may be part of a major long-term strategy shift by Roche."

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