Roche Makes Hostile Bid For Genentech, Lowers Price
The cash offering replaces the original $89-a-share proposal that was intended to lead to a negotiated merger, the Basel, Switzerland-based company said in a statement today. Roche will begin a tender offer within two weeks.
The latest approach, Roches second unsolicited bid following the purchase of U.S. diagnostics company Ventana Medical Systems Inc. last year, comes on the heels of Pfizer Inc.s $68 billion planned takeover of Wyeth announced on Jan. 26. Drugmakers are seeking a way out of the deepening global recession that threatens prices and increases the pressure to speed more products to the market at a time when some of the industrys biggest medicines are losing patent protection.
“Its pretty much Ventana revisited and along with it comes risks and potential benefits,” said Karl Heinz Koch, an analyst at Helvea in Zurich. “Because its no longer friendly, theres a higher risk of losing key people.”
Roche gained as much as 3.4 percent in Zurich trading to 165.7 Swiss francs, selling for 163.7 francs as of 9:33 a.m. to give it a market value of 142 billion francs ($123 billion). Genentech gained 65 cents, or less than 1 percent, to close at $84.09 in New York yesterday, 2.8 percent below todays offer price. That gives Genentech a market value of $88.5 billion.
Direct Offer
“In light of the lack of progress towards an agreed transaction” with Genentech, “Roche has now decided to make an offer directly to Genentech shareholders,” the Swiss company said in the statement.
Full ownership would help Roche, which has held a stake in the U.S. company for almost 20 years, boost income from Genentechs products and ensures access to its labs after an existing accord expires in 2015.
Roche intends to keep Genentechs research and early drug development independent, and said it would move its own U.S. commercial operations to Genentechs South San Francisco, California, site. The combined U.S. pharmaceutical operations would carry the Genentech name, Roche said.
The Swiss drugmaker said in July the weakness of the dollar against the franc played a role in the timing of its offer. The U.S. currency has since strengthened about 13 percent against the franc.
Second for Schwan
A takeover would be the second major transaction for Severin Schwan, 41, who took over from Franz B. Humer as chief executive officer less than a year ago. Schwan led Roches $3.4 billion purchase of Ventana as head of Roches diagnostics unit.
Buying Genentech would cut costs and boost earnings for Roche, the worlds biggest maker of tumor-fighting drugs. The Swiss company has used Genentechs advances in cancer treatment to become the fastest-growing among the worlds largest pharmaceutical manufacturers.
Genentech products, including the Rituxan and the Avastin cancer medicines, account for about 40 percent of Roches revenue.
Avastin is approved to treat colon, lung and breast tumors and is being tested in more than 400 clinical trials involving 40,000 patients worldwide. Avastin may also become the best- selling medicine in the world within six years, according to London-based consultant EvaluatePharma. The medicine generated 3.7 billion francs in sales for Roche during the first nine months of 2008.
Conditions Attached
Roches offer is subject to the majority of outstanding shares being tendered and is conditional upon Roche obtaining sufficient financing. The Swiss drugmaker plans to finance the transaction with a mixture of its own cash, commercial paper, bonds and bank loans.
The Swiss company plans to tap bond markets first for financing. Pfizers takeover of Wyeth had no influence on the decision to pursue a hostile bid for Genentech, Humer said on a conference call.
Roches move follows an agreement by its controlling family two days ago, extending a shareholders pact to keep their majority stake in one pool for an unlimited period and preserving the Swiss companys independence.