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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