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Roche Gets Hostile

Lower offer for Genentech coincides with more merger talk in the pharma sector

by Lisa M. Jarvis
February 9, 2009 | A version of this story appeared in Volume 87, Issue 6

Credit: Roche
Credit: Roche

IN A DRAMATIC TWIST in the Roche-Genentech saga, the Swiss drug giant has lowered its offer for Genentech. The new $86.50-per-share offer values the biotech firm at $42.1 billion, down about $1.6 billion from the original bid made in July. And now, rather than continue to court Genentech's board for approval, Roche is taking its case directly to minority shareholders.

In July, Roche made a surprise bid for full control of Genentech, in which Roche has owned a 56% stake since 1990. At the time, analysts were confident that Roche would have to up the ante by 15 to 20% to secure the deal (C&EN, July 28, 2008, page 13).

Indeed, Genentech's board rejected the offer in August, and the companies have since made little progress toward an agreement.

"We are disappointed that the discussions over the past six months between Roche and the special committee of Genentech have not produced a negotiated agreement," Roche Chairman Franz B. Humer says. "We feel it is now time to give the Genentech minority shareholders the opportunity to decide on our offer. Especially in the current market environment, the offer provides an opportunity for all public shareholders to achieve liquidity and to receive a fair price for all their shares."

The financial crisis has taken its toll on the biotech industry. Some analysts now think shareholders should take Roche's money and run. Weak results from the third and fourth quarters of 2008 "highlight to us that Genentech's best days may be over," Leerink Swann stock analyst Bill Tanner says.

Tanner contends that Genentech's stock is overvalued, even at the lower offer. Still, shareholders may not warm to an offer that represents just a 3% premium over the stock's closing price the day before the deal was announced.

Roche's hostile turn comes amid a resurgence of deal-making in the pharma sector. Last month, Pfizer said it would pay $68 billion for Wyeth. Soon thereafter, Sanofi-Aventis' CEO reportedly told employees the company has cash and is looking for a big acquisition. And Merck & Co. CEO Richard T. Clark signaled a reversal of strategy last week, telling investors that no CEO "in today's world could categorically rule out any type of transaction.



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