Roche-Genentech deal goes hostile

Twice rebuffed in its efforts to acquire the 44 percent of Genentech Inc. it does not already own, Swiss drugmaker Roche late last month officially launched a hostile offer for the San Francisco-based biotech for $86.50 in cash per share, or about $42 billion.

Amy Swinderman
BASEL, Switzerland—Twice rebuffed in its efforts to acquire the 44 percent of Genentech Inc. it does not already own, Swiss drugmaker Roche late last month officially launched a hostile offer for the San Francisco-based biotech for $86.50 in cash per share, or about $42 billion.

The companies have been at an impasse since July 2007, when Roche proposed an $89-per-share takeover. According to Roche's filing with the Securities and Exchange Commission (SEC) on Monday, Genentech initially refused to place a value on the company until Roche raised its offer. In December, Genentech's board of directors told Roche it would consider selling the remaining stake in the company for $112 per share, or about $52 billion.

Unable to reach a deal, Roche said in January that it would go directly to Genentech's shareholders through a tender offer. On Monday, Genentech's board members advised shareholders to take no action on the offer. Officials from both companies did not respond to a request for comment.

In its SEC filings, Roche also said it plans to exercise its right to increase its representation on Genentech's board to account for its 100 percent stake in the company, which would give it a majority on the board. The tender offer expires March 12, but Roche has the option to extend it.

Much of the impasse stems from the anticipated clinical trial results of Genentech's blockbuster cancer drug Avastin, which is in trials for post-surgery colon and lung cancer. If the drug is successful in clinical trials, however, it could bring $1 billion to the total $2.7 billion in sales it saw in the United States last year—increasing Genentech's value to Roche.

Genentech has 10 days to file its response. Following the news, Genentech shares fell below Roche's offer at $82.70.

Analysts are sharply divided on the potential takeover. Many investors believe Roche will not be able to come up with the cash. In its filings, Roche said it lowered its asking price to $86.50 due to its difficulty in securing credit to finance the acquisition. Roche said it intends to finance the deal through a combination of its own funds, commercial paper, bonds and traditional bank financing, but its tender offer is conditional on its ability to secure funding.

"Some even wonder whether Roche's decision to go hostile—announced just days before the release of its 2008 results—could actually have been prompted by the prospect of slowing growth, as well as the strengthening U.S. dollar and tighter credit conditions," a Reuters report said.

Others believe Goldman Sachs overestimated Genentech's value.

"So what is the correct price for Genentech?" writes Jim Edwards, a BNET Pharma analyst. "There's a simple answer if you're a Genentech stockholder: The correct price is the price being offered by the highest bidder in the market. DNA traded at $80 before the bid, and is now at about $83. Roche is offering $86.50. There are no other bidders. That's the price of Genentech stock." DDN

Amy Swinderman

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