Genentech rejects Roche's USD 43.7b bid
Genentech rejects a USD 43.7 billion buyout offer from Swiss drug developer Roche but welcomes a higher takeover bid.14 August 2008
NEW YORK - Biotechnology giant Genentech Inc rejected a USD 43.7 billion (CHF 47.4 billion) buyout offer from Swiss drug developer Roche, its majority owner, on Wednesday but said it is open to a higher takeover bid.
The rejection comes nearly a month after Roche offered USD 89 per share for the rest of South San Francisco, California-based Genentech. Roche already owns about 55.9 percent of the company.
The unanimous rejection by the special committee almost seemed like a foregone conclusion to the market, with investors and analysts immediately calling the offer of an 8.8 percent premium too low when it was made 21 July.
The stock has been trading above the offer since it was made, and approached a three-year high Wednesday, hitting USD 99.
Shortly after the offer was made, several analysts said Genentech is worth over USD 100 per share.
"The special committee is confident in the company's strong financial and clinical momentum and its uniquely productive research and development capabilities, which will continue to enhance shareholder value," Dr. Charles A Sanders, chairman of the special committee, said in a statement.
Genentech gets most of its revenue from cancer treatments, including the blockbuster drug Avastin. The lung, colon and breast cancer drug had revenue of USD 2.3 billion in 2007, Meanwhile, its rheumatoid arthritis and non-Hodgkin's lymphoma drug Rituxan posted nearly USD 2.3 billion in sales, while the breast cancer treatment Herceptin had sales of USD 1.3 billion.
While Wall Street expected a rejection as part of a negotiating process for a higher Roche bid, the Swiss majority owner may still have some leverage.
Under an agreement between the two companies, a majority of non-Roche shareholders must approve any sale or merger of Genentech with Roche.
If shareholders reject the bid, according Securities and Exchange Commission filings for Genentech's 1999 public offering of stock, Roche can hire investment banks to set the price for Genentech's remaining shares.
Genentech has indicated it is not necessarily bound by that agreement.
Roche has indicated there could be cuts to the 10,700-member workforce at Genentech if a deal goes through. In response, Genentech said its special committee approved an employee-retention program to address any employee concerns.
"The agreement to institute an employee retention program is an acknowledgment that a deal is likely and that it is in the best interest of both companies to minimise turnover," Cowen and Co. analyst Eric Schmidt said in a note to investors.
He also said there is likely no going back to the "hands off" relationship the two companies have had for the past nine years, further making a deal inevitable.
Meanwhile, BMO Capital Markets analyst Jason Zhang said it's likely in Roche's best interest to make a deal, as the acquisition would bring in about $12 billion in revenue immediately.
It would also eliminate a future crisis faced by Roche in 2015, the year it loses exclusive rights to Genentech's products outside the US and potentially billions of dollars in revenue, he added in a note to investors.
[AP / Expatica]
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