Genentech Sought $112 A Share, 29% More Than Roche Hostile Bid
Roche disclosed details of its negotiations with Genentech in documents filed yesterday with the U.S. Securities and Exchange Commission. Roches disclosure of the $112-a-share figure is the first indication of the price Genentech thinks it is worth. The view was dismissed by Roche Chairman Franz Humer, who according to the filing told Genentech the price wasnt “an appropriate starting point for negotiations.”
On Jan. 30, Roche lowered its $89-a-share offer made in July, saying it would take the bid directly to shareholders. Roche, based in Basel, Switzerland, owns about 56 percent of South San Francisco, California-based Genentech and wants to buy the remainder to gain full ownership of the U.S. companys cancer medicines. Roche cited “unprecedented developments” in the global economy as a reason for its reduced bid.
“These adverse developments have caused us to revise certain key assumptions in our determination of fair value” of Genentech, Roche said in the filing.
Roche said it will pay for the $42 billion transaction with a combination of bank loans, issuances of debt securities and available cash. The offer is subject to 90 percent of outstanding shares being tendered and conditional upon Roche obtaining sufficient financing.
Genentech, in a statement released yesterday, repeated its previous comments urging shareholders to reject the offer and saying it will reply within 10 business days.
Roche spokesman Al Wasilewski, in Nutley, New Jersey, said the company wouldnt comment on the offer, which expires March 12, “beyond whats in the press release.”
Series of Meetings
The two companies held a series of meetings during December and January to discuss the different views of Genentechs business prospects and a fair price for the company, according to the Roche filing.
On Dec. 12, Roches advisers from investment bank Greenhill & Co. and Genentechs advisers from Goldman Sachs Group Inc. met in New York to review a Genentech-prepared financial model developed in November that valued Genentech at $112 to $115 a share. The same day, Charles Sanders, who chairs Genentechs special committee, told Humer the biotechnology company would accept $112 a share.
Genentech said the $112 price reflected future growth prospects for the companys best-selling product, the cancer drug Avastin, and its other experimental drugs in development.
Roche “disagreed with a number of assumptions” in Genentechs financial model, including “key assumptions” about future products, according to the filing. Genentechs medicines generate about 40 percent of the Swiss drugmakers revenue.
A major point of contention was the probability of success of Genentechs Avastin in current clinical trials for early stage colon, breast and lung cancers. Avastin is seen as the main engine of Genentechs future growth, though Roche estimated the trials would take longer, had lower odds of success and the cancer drugs new markets would be smaller than Genentech projected.
Key results from the Avastin trial in early-stage colon cancer are expected in mid-April, according to Genentech. Positive findings could help expand the market for the medicine and boost Genentechs value.
Roche has held a stake in Genentech for almost 20 years. The companys products have helped spur Roches growth and include Rituxan for non-Hodgkins lymphoma and Herceptin for breast cancer.
On Jan. 9, managers and advisers for both companies met to discuss potential competitive threats to Genentech, including generic versions of biotechnology drugs that were due to lose patent protection in the future, according to the Roche filing.
Hostile Bid
On Jan. 15, Roches advisers at Greenhill presented Goldman Sachs with a detailed list of disagreements that questioned the effect of future price increases for Genentechs drugs, the companys research productivity, development costs and the value to Roche of extending its option to exclusively license future treatments.
During a Jan. 23 telephone call, Sanders again told Roches Humer that Genentech considered $112-a-share a “fair” price. Humer responded that $112 a share “was not an appropriate starting point for negotiations,” the filing said.