Roche's Bid for Genentech Turns Hostile
Swiss Pharmaceutical Company Cuts Offer for Genentech, Goes Directly to Shareholders
JANUARY 30, 2009, 8:29 A.M. ET
By ANITA GREIL and JEANNE WHALEN
online.wsj.com
In a surprise move, Swiss pharmaceutical company Roche Holding AG made a new, lower offer for California biotech company Genentech Inc., going directly to shareholders after failing to reach an agreement with Genentech directors on price.
Roche said it will cut its offer to $86.50 a share from $89 a share, reducing the total size to about $42.8 billion from $44 billion, and commence a tender offer within "approximately two weeks."
Roche is trying to buy the 44% of Genentech that it doesn't already own. Genentech shares closed at $84.09 in the U.S. Thursday. In August, a committee of Genentech directors rejected Roche's initial offer as too low.
"We are disappointed that the discussions over the last six months between Roche and the special committee of Genentech have not produced a negotiated agreement," Roche chairman Franz Humer said in the statement. "We feel it is now time to give the Genentech minority shareholders the opportunity to decide on our offer."
By cutting its offer and going directly to shareholders, Roche may be betting that hedge funds and other short-term holders of Genentech stock are keen enough for cash in the current environment that they will accept the deal. But the company risks a Pyrrhic victory if its hostile bid alienates Genentech's scientists and prompts them to leave the company.
On a conference call with reporters, Mr. Humer said he is confident that key employees won't leave Genentech as a result of the hostile bid. He said he informed Genentech Chief Executive Arthur Levinson and Charles Sanders, chairman of the board committee evaluating Roche's offer, of Roche's new plans a few hours ago. Dr. Sanders reacted positively to the move, saying that he understood Roche's position, Mr. Humer said.
Roche said the offer will be conditional upon Roche raising sufficient financing to fully pay for the deal. Mr. Humer said the company is confident it will have the financing in place in time to carry out the offer. The company said it plans to finance the bid with a mix of its own cash, commercial paper, bonds and traditional bank financing.
"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," Mr. Humer said in the statement. He said it was too early to say when the deal would be completed.
Roche said the offer would also be conditional on at least a majority of the outstanding publicly held Genentech shares tendering their shares in the offer.
Roche needs to raise an estimated $30 billion to $35 billion to complete the deal -- a large sum amid currently turmoil on financial markets. Mr. Humer said that Roche's decision to address shareholders directly wasn't influenced by any outside events, such as Pfizer Inc.'s recent deal to buy Wyeth, or the expected publication of key data on Avastin, the cancer drug that Genentech and Roche sell jointly.
"This offer does not change our initial plan on how we combine the two companies and operate the new entity. We have great respect for our colleagues at Genentech and we will take the necessary steps to nurture Genentech's innovative and unique science-driven culture," Roche's CEO Severin Schwan said in the statement.
Roche shares, which have lost 15% over the past year, closed Thursday at 160.30 Swiss francs ($139.01), giving the company a market capitalization of around 140 billion francs.
Write to Anita Greil at anita.greil@dowjones.com and Jeanne Whalen at jeanne.whalen@wsj.com
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