By Steve Goldstein

LONDON (Dow Jones) -- In a display of hostility toward a firm it mostly owns, Roche Holdings on Friday lowered its takeover bid for Genentech and took the offer directly to shareholders.

Roche (RHHBY), of Switzerland, said it's now offering $86.50 in cash per Genentech share, down from the $89 it had tabled in the summer. The new price represents a premium of less than 3% over the value of Genentech shares before the hostile deal was announced. The stock was trading down 3.6% at $81.09 by midday Friday.

Roche already owns 56% of the South San Francisco biotech, making the bid worth about $42.5 billion. A special committee representing Genentech (DNA) spurned the first Roche offer back in August.

"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," said Roche's chairman, Franz Humer.

"We feel it is now time to give the Genentech minority shareholders the opportunity to decide on our offer. 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."

Roche said the deal is conditional on the support of a majority of the minority holders as well as getting financing.

Jason Zhang of BMO Capital Markets thinks it's unlikely that Genentech shareholders will go for the bid.

"We cannot imagine Genentech shareholders will tender their shares for less than 3% premium based on yesterday's close. So we think Roche's probability of success is small to zero," Zhang wrote in a note to clients.

Ian Somaiya of Thomas Weisel thinks a majority of Genentech investors might take the offer because of the risk facing the company leading into the report of its latest clinical trials of its cancer drug Avastin. Somaiya thinks negative trial data could push Genentech shares to the mid-$60 range.

"In the current environment, we expect investors to take the certainty of the Roche offer vs. hold out for 'something better,'" he wrote.

The credit crunch has seen several negotiated deals go by the wayside, though in this case Genentech never agreed in the first place.

At 80% ownership, Roche would be able to restructure Genentech in a way to cut costs across the combined business, Koch noted. Roche also would get access to Genentech's cash at that ownership threshold.

However, as with all hostile offers, there's the risk that the deal could alienate employees at Genentech, many of whom are key to the company's future success.

"Naturally an unfriendly offer bears the risk of losing key people, though the long-term benefits of having full access to Genentech is still appealing," said Karl-Heinz Koch, an analyst at Swiss broker Helvea.

Despite the hostile approach, Roche said it still wanted to "nurture" Genentech's culture and the firm would stay in the Bay Area. In fact, Roche's pharmaceutical commercial operations in the U.S. would be moved from Nutley, N.J. to Genentech's site in South San Francisco under the Swiss firm's plan.

Roche plans to finance the transaction by a combination of its own funds, commercial paper, bonds, as well as a traditional bank financing.

Greenhill is advising Roche. Goldman Sachs has advised the Genentech special committee.

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