Roche makes lowered, hostile bid for Genentech

NEW YORK - Swiss drugmaker Roche Holding AG surprised Wall Street with plans for a lower-than-expected and hostile $42.1 billion buyout offer for Genentech Inc. Friday, a move some consider a tactic to force negotiations with the biotechnology behemoth.

The $86.50-per-share offer, $2.50 less than an offer rejected in July, sparked some concern from analysts that key personnel at the biotech pioneer could leave, depending on any potential deal.

Roche said it would formally make the offer directly to shareholders within two weeks. Several analysts have said it is a possible attempt to force talks with what has been a reticent Genentech board and take advantage of falling share prices amid the global economic crisis.

Roche already owns 55.8 percent of Genentech, and had its prior $89-per-share offer rejected as too low by the South San Francisco-based company's board last July. The new offer values the outstanding shares at about $1.6 billion less than the previous bid.

Genentech shares fell $2.85, or 3.4 percent, to close at $81.24. The stock has traded between $66.80 and $99.14 over the past 52 weeks.

Roche said its new offer is aimed directly at shareholders, bypassing the board. The offer is significantly lower than the $100-per-share value analysts had been touting for several months.

"We feel it is now time to give the Genentech minority shareholders the opportunity to decide on our offer," Roche chairman Franz Humer said in a statement.

"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."

The lower-than-expected offer comes amid a dismal global economy and after several lackluster quarters for Genentech. Many on Wall Street had been pinning hopes for a near $100-per-share offer to upcoming study data on Avastin, expected in April. The drug is approved for colon, lung, and breast cancer and many say it has already saturated the market in those first two uses, leaving little room for growth.

"The entire (stock) market has been revalued," Leerink Swann analyst William Tanner said in an interview with Associated Press.

He called hopes that any new data would drive the stock higher are disproportionate to how much shares could fall on bad news.

"Why wouldn't you sell for $86.50?" he said.

Genentech derided the move by Roche in a statement Friday but said it wouldn't take a position until the drugmaker formally makes the offer.

"The special committee is disappointed that Roche has taken this unilateral and opportunistic step in an attempt to take advantage of current market conditions," Genentech said.

Meanwhile, BMO Capital Markets analyst Jason Zhang sees the lower offer as a tactic by Roche to force Genentech negotiations. Roche, could have the upper hand right now because its ownership stake in Genentech essentially means the company can't sell itself to anybody else.

Erik Gordon, biomedical analyst and professor at University of Michigan's Ross School of Business, was more blunt about the tactic.

"It's a signal from Roche to shareholders and the special committee: 'Don't underestimate us, don't think we are a solid Swiss company that won't take off the gloves and fight,' " he said.

While he said Roche can take advantage of the weak economy in the lower offer, it is likely that the price could rise if the bid spurs Genentech to negotiate.

Meanwhile, experts expressed concern that the hostile bid could harm relations at the boardroom level.

Analysts at the St. Gallen-based private bank Wegelin spoke of a "worrying gap" between Roche and Genentech executives, saying a successful takeover might result in key people leaving the company out of frustration.

Zuercher Kantonalbank said it expects Roche's takeover attempt to fail.

Roche said it intends to retain Genentech's South San Francisco base as an independent research center if the takeover succeeds.

Gordon, meanwhile, doesn't expect there would be an exodus of talent from Genentech if Roche completes a deal.

"You can be sure that Roche will be very careful not to destroy the asset they bought," he said. "Big pharma people know this; they have to be able to bring in small, focused companies and biotech to make it work because it's a big part of their future."

Genentech was one of the first biotech companies and is known as a haven for scientists.

Roche shares rose 1.9 percent to 163.40 Swiss francs ($140.67) on the Zurich exchange Friday.

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AP Writer Frank Jordans contributed to this story from Geneva.

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