Roche Seen Raising Genentech Bid after Rebuff

Roche will likely have to up its bid for the 44 percent of Genentech it does not own, analysts said on Tuesday, after the US biotech group urged shareholders to reject the offer.

A special committee of Genentech's board recommended shareholders reject Roche Holding's $42 billion bid, saying it substantially undervalues the US company.

"Now the ball is back with the Basel company," Wegelin analyst Marco Schwender said. "It is clearly possible that investors will now hope for a better offer from Roche."

Roche's surprise hostile offer for Genentech, pitched at a lower price than the Swiss drugmaker's original rejected bid of $89 per share, reflects tougher financing conditions and a drop in the US group's shares.

Roche has said that Genentech's banker, Goldman Sachs, had proposed $112 a share as an acceptable price, giving a glimpse of just how far apart the two sides were before Roche decided to go hostile with its latest bid of $86.50 a share.

The difference of opinions highlights the gap between Big Pharma views -- based on a relatively straightforward financial valuation argument -- and biotech, using "soft elements" like strong science and products in early stages of development, JP Morgan analysts said.

"How that gap can be bridged remains difficult to see for us -- hence time to resolution may take longer than expected," they said in a note.

UP to $100 Per Share?

Genentech shares closed at $84.55 on Monday. Roche stock ended down 3.8 percent at 137.80 Swiss francs on Tuesday, versus a 1.5 percent drop in the European healthcare sector.

AP

"We are not surprised to see Genentech refuse Roche's lower offer," said Andrew Weiss, analyst at Swiss bank Vontobel. "We continue to believe that the Genentech asking price of $112 is too high, and that eventually Roche will need to improve its offer to $95-100."

Roche has sold a record $16 billion in debt to help finance its Genentech bid. It has said it plans to use a combination of its own funds, bonds, commercial paper and bank financing for the deal.

"It is clear that with Roche raising capital there is no turning back and as such a sweetened offer should be expected," said Karl-Heinz Koch at Swiss brokerage Helvea.

Roche, which won a recent takeover battle to buy diagnostics company Ventana by sweetening a tender offer by some 19 percent, has noted the response of the Genentech committee, spokesman Daniel Piller said.

In the Ventana case, Roche sat on its initial hostile offer of $75 a share for some seven months before raising its price to $89.50 and buying the US group for $3.4 billion.

"We have laid out our case comprehensively in the tender offer. It is now up to the shareholders to decide on our offer," Piller said.

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