Roche's Hostile Bid for Ventana
Would Boost Diagnostic Portfolio
By ANITA GREIL
June 26, 2007 11:14 a.m. [WSJ]
ZURICH -- Roche Holding AG's hostile $3 billion cash offer for Ventana Medical Systems Inc. underlines the Swiss health-care company's strategy of acquiring midsized and small companies whose diagnostic products allow it to target drugs to individual patients.
Roche, a global leader in targeted cancer drugs, wants to acquire Ventana to broaden its portfolio of diagnostic tests. The move "is an important step in our strategy of delivering fully-integrated personalized health-care solutions to patients," the Swiss drug maker said.
Ventana makes clinical systems used to analyze human tissue to assist in the diagnosis and treatment of cancer and infectious diseases. Buying the Arizona-based company would allow Roche to access technology that -- for example -- helps doctors pinpoint which women would most benefit from use of breast-cancer drug Herceptin, said Denise Anderson, pharmaceutical analyst with broker Kepler Equities. She has a buy rating on Roche.
The potential deal would represent Roche's fourth acquisition this year aimed at expanding the Basel-based company's diagnostics portfolio.
Last week, Roche said it plans to buy privately held NimbleGen of the U.S. for $272.5 million. NimbleGen, based in Madison, Wis., makes high-density DNA microarrays, tools used in pharma research to understand the genetic causes of disease and the identification of potential drug targets.
In April, Roche agreed to buy BioVeris Corp., a U.S. diagnostics company, for $600 million in cash, in a move to strengthen its presence in the fast-growing immunochemistry market. Roche also recently completed the $155 million takeover of 454 Life Sciences Corp. a maker of sequencing products for diagnostic tests.
Roche late Monday said it plans to launch an unsolicited public offer after Ventana's board had declined to enter negoations. "We've tried for six months to persuade them -- we've made many different approaches, but these offers were all rebuffed," chief executive Franz Humer said on a conference call with reporters.
Roche would still prefer a friendly deal, and hopes that Ventana's board will view the offer favorably, after it has seen the full offer, Mr. Humer said.
The public-tender offer gave Roche a chance to lay out the rationale behind the deal and a chance to demonstrate the opportunities that being a part of Roche would represent for the company and its employees, he said.
Roche plans to operate Ventana as a separate unit within its diagnostics division, and for the company to keep its headquarters in Tucson.
Roche entertains a similar relationship with Genentech Inc. of the U.S., one of the world's largest biotechnology companies, which is majority-owned by Roche but is managed as an independent company out of San Francisco.
Ventana advised its shareholders to defer any action in response to the offer, saying its board will review and consider Roche's $75-a-share bid for the company, and make a recommendation to shareholders within 10 business days.
Roche's offer prices Ventana at 59 times forward earnings, according to FactSet. The last time Ventana shares traded at that P/E was in December 2001.
Roche expects the deal to enhance earnings after two to three years, but Mr. Humer made clear that the main goal of integrating Ventana was to move closer toward delivering tools to select the right drugs for the right patients, rather than saving costs.
The Arizona-based company, which employs about 950 people, reported sales of $238.2 million last year.
The tissue-based-testing market is valued at $1 billion and is growing at 10% a year, twice the rate of the overall in-vitro diagnostics market, Roche said.
The offered per-share price of $75 represents a 45% premium to Ventana's price of $51.74 late Monday in Nasdaq composite trading. Mr. Humer had declined to say whether Roche would be prepared to raise the offer price.
"We've offered a very full premium and price and I wouldn't speculate in any other direction," Mr. Humer said on the conference call.
"The addition of Ventana would help Roche to build a strong position in cancer diagnostics, an area where Roche has not been very present in the past," said Karl-Heinz Koch, pharmaceutical analyst at private bank Vontobel. He has a sector outperform rating on Roche.
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