With word today that Roche is going hostile and cutting the price of its bid for shares of Genentech to $42 billion, what should be the first questions on the minds of investors? On CNBC’s Closing Bell, Karen Finerman gives Dylan Ratigan her take on moves in the Pharma market.
Finerman points out that the situation between Roche and Genentech is an interesting deal, as had started in the “old world” and is now continuing in the “new world” of today’s market. She says it is interesting that Roche has gone hostile at this point, as she notes the two companies have been talking for the last six months, unable to come to a deal.
For many reasons, she encourages you to stay close to the story. In two weeks, when Roche has said they will start their tender offer, the company will have to disclose details on the negotiations that had taken place with Genentech.
Finerman believes that after this we could see an offer side from Genentech that could be higher than what we are seeing now. Based on this logic, Finerman says her firm has bought calls, building on an already established position, seeing an upside to the stock down the road, which may ultimately end in a deal between the two companies.
There is also speculation that Roche may have gone hostile in an effort to preempt results coming in April that may boost Genentech’s stock price. Finerman agrees that shortcutting positive future results could be the reason why Roche made the decision to go hostile at this exact moment, and said these concerns would be the first question she would ask of the Roche CEO.
As far as trading individual drug companies, Finerman tends to shy away from the risk inherent in making trades based on individual drug trials, encouraging investing with more diversity.
Instead, Finerman suggests looking into ETFs like XBI or the IBB when investing in Pharmaceuticals. She sees big moves in the future of the Pharma market, the “beginning of a wave of consolidation,” and you’re better off playing these ETFs.
Away from Biotech, Procter & and Gamble has been a great defensive place to hide, but Finerman feels that the valuations have become too high for most investors. She suggests staying away from P&G for now, until the valuations come back down. She suggests that Wal-Mart may have also gotten a little expensive, although it is still a good company based on strong fundamentals. On this name too, the valuations have simply become slightly higher than she’d like to see.
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CNBC.com with wires