Here's some comment on Roche in the Financial Times. Note that Roche would likely have to settle the IGEN dispute before it could contemplate a significant merger that used its stock.
Roche fall fuels speculation on takeover strategy
By William Hall
Published: April 2 2001 15:53 | Last Updated: April 2 2001 20:43
A sharp fall in the value of the bearer shares of Roche, the Swiss pharmaceuticals giant, is fuelling speculation that the 105-year-old group is preparing to simplify its dual share structure ahead of a major acquisition or merger.
The price of Roche's bearer shares, which are majority controlled by the descendants of the founding families, has fallen by a third this year, to SFr13,580 ($7,790). The bearer shares are now trading at their lowest since 1995 and the premium over the more widely traded non-voting security, which closed on Friday at SFr12,500, has shrunk from 77 per cent in 1995 to 8.6 per cent.
Denise Anderson, of Bank Julius Baer, says the most obvious reason for the collapse in the premium is that Roche could be planning to unify its share structure in order to make a large acquisition. Roche has repeatedly said it sees no need to change its dual share structure, but could do it very quickly if the need arose.
Analysts believe that the need is more pressing than before, especially if Roche wants to remain a top industry player. The retirement, at Wednesday's annual meeting, of Fritz Gerber, 72, who has headed the group since 1978, has raised expectations that change is in the air at Roche.
Franz Humer, 54, the new chairman and chief executive, has said that Roche's new management team has "different ambitions" and expects to translate these into "tangible actions" over the coming year. Last week Mr Humer broke a long Roche tradition by severing his boardroom ties with Zurich Financial Services.
Roche, which used to be the world's most valuable drugs company, has seen its pharma sales growth slow to just 1 per cent last year, and analysts believe that it will continue to perform below average. Its biggest and most profitable drugs are losing patent protection, and only one new product - Xenical, an anti-obesity drug - comes close to satisfying the "blockbuster" criterion of being able to generate $1bn of sales within the first two years of launch.
Traditionally Roche's 1.6m bearer shares have traded at a very substantial premium to the 7m non-voting securities, which account for some 80 per cent of Roche's market capitalisation. The bearer and non-voting shares receive exactly the same dividends and the only difference is that the bearer shares carry the right to vote and ultimate control of the company.
Roche's dual share structure has allowed the descendants of the founding families of Fritz Hoffmann and Adele La Roche to keep 50.01 per cent control while owning less than 10 per cent of the capital. Martin Ebner, Switzerland's best-known corporate predator, owns another 16.8 per cent of the company's votes.
Last year Mr Ebner was rebuffed after he tried to join the Roche board and called for the unification of the company's share structure. But many analysts believe that Roche's decision to spin-off Givaudan, its fragrances and flavours business, and recruit more independent directors was a response to his pressure.
For many years Roche was the world's biggest and most profitable pharmaceuticals company and as recently as 1995 ranked third in size in European stock market capitalisation behind Royal Dutch Shell and British Telecom.
However, Roche has been slipping down the pharma league tables over the last five years. In June 1996 it had a market value of $74bn which put it second after Merck ($81bn), and made it two thirds bigger than rivals such as Pfizer and Glaxo-Wellcome.
Since then Merck's value has more than doubled to $172bn. Glaxo and Pfizer, through their mergers of SmithKline Beecham and Warner-Lambert, are now valued at $265bn and $170bn respectively, while Roche's market value remains unchanged at $74bn.
Over the last decade Roche has spent over $20bn on three acquisitions - Genentech, Syntex and Boehringer-Mannheim - in a bid to hang onto its position amongst the industry's top five. The deals have occurred at intervals of every three to four years, and analysts expect Roche to make another takeover shortly to boost its lacklustre drug pipeline and strengthen its position in the US, the w1orld's number one drug market.
Roche has paid off all the debt raised at the time of its $10.2bn acquisition of Boehringer Mannheim in 1997. With SFr3bn of net cash and SFr28bn of equity, it could easily buy a company, such as Du Pont, currently on the block. However, Du Pont would not be enough to catapult it back into the premier league of Pfizer, Merck and GlaxoSmithKline, which are now between two and three times Roche's size.
If Roche is to regain its position at the top of the world pharma industry, it will almost certainly have to take part in a larger merger. Novartis, its only Swiss rival, which is enjoying double digit sales growth, is one possibility.
But Novartis would not remedy Roche's need to bolster its position in the US where the industry is enjoying double-digit growth. To do this Roche probably needs to find a big US partner and also a full US share listing, all of which cannot take place until Roche agrees to unify its outdated share structure.
The collapse in the price of Roche's bearer shares suggests that the stock market has sensed what needs to be done, even if Roche has yet to admit that it has read the writing on the wall. |
