Roche Cuts Genentech Bid, Turns Hostile

Roche cut the price of its bid for outstanding shares in Genentech, going hostile and dashing investor hopes of a sweetened offer for the 44 percent of the U.S. biotech group its does not already own.

Roche Holding's new and lower offer, pitched directly to shareholders, was a surprise and reflected tougher financing conditions and a drop in Genentech shares, analysts said on Friday.

Marcio Jose Sanchez / AP The Genentech campus is seen in South San Francisco, California.

"We are confident that we will have the financing available when the money is needed," Roche Chairman Franz Humer told reporters.

Roche is now making a public tender offer at $86.50 per share in cash, valuing the deal at $42 billion, replacing its initial bid that totaled $44 billion.

Roche stock rose in european trading as investors welcomed the slightly lower price. Genentech shares were lower.

Roche had initially aimed to acquire the remaining shares through a negotiated settlement—an offer rejected by Genentech—and decided to appeal directly to shareholders after further talks failed to reach an agreement, Humer said.

"The plan is to use as financing partly our own funds, and then obviously bonds and then commercial paper and traditional bank financing. We will start by going to the bond market first," he said.

Buying Genentech would give Roche control of all revenues for big-selling cancer drugs Avastin and Herceptin, as well as absorbing an attractive portfolio of new medicines, and reflects Big Pharma's rush to acquire biotech assets to fill sparse new product pipelines.

But Andreas Theisen, analyst at WestLB, reckons few Genentech shareholders will jump at the offer.

"We believe Roche aimed to stick to its take-out plans, but is also trying to get some extra time until maybe financing conditions improve," Thiesen said.

Pfizer Raises the Stakes

Roche's new offer is at a premium of nearly 3 percent over the Genentech's closing price of $84.09 on Thursday.

Roche had originally bid $89 per share, aiming to grab a greater share of Genentech's promising future earnings profile, based on blockbuster cancer drugs Avastin and Herceptin.

Initially, shares in Genentech rose to a high of $99.05, but later fell back below the offer price as the credit crisis bit, which gave Roche leeway to lower its offer. (Watch the accompanying video for the latest on the deal...)

And this week Pfizer $68 billion bid for Wyeth , which was backed by a new $22.5 billion loan in addition to cash and stock, upped the stakes further, indicating pharmaceutical sector M&A was far from dead.

Roche made a fresh round of calls to banks after news of that deal emerged, bankers close to the deal told Reuters.

Business leaders meeting in Davos, meanwhile, said they saw opportunities in the global downturn, though leverage is out and a hard-nosed focus on cost cutting is the order of the day.

Roche declined to give details of how its planned financing would break down. Roche, which currently owns 56 percent of the Genentech outstanding shares, expects to commence the tender offer within approximately two weeks.

Greenhill & Co is financial advisor to Roche and Davis Polk & Wardell is legal counsel for the tender offer.

• Click Here for More European News

Copyright 2009 Reuters. Click for restrictions.