Okay, I promise this will be the last post about the ongoing Genentech-Roche saga. No more Maury Povich jokes about DNA tests. No more references to O.J. Simpson. But I have to give an update to the faithful, and today there was some notable activity the suggests options traders think a better bid is in the offing for everyone's favorite biotech.
For the uninitiated, In July Roche bid $43 billion, or $89 a share, for the remaining part of Genentech it did not already own. Many, including Genentech's board, thought the offer was too low. But that didn't stop Roche from coming back with an even lower bid that market observers thought was absurd. But the move was right out of Roche's takeover playbook.
"They did the same thing with Ventana," said "Options Action" star Mike Khouw, referring to Roche's initial $75 bid for Ventana Medical Systems back in June of 2007. Eventually, Roche came up with the cash, and raised its bid to about $90. "They don't chase the offer. They low-ball and then work their way up," said Khouw.
With Roche's successful $16 debt offering last week, the company is flush with cash. Plus it's a motivated buyer. In April, Genentech will release results for Avastin use in colon cancer. If the trial is successful, you can expect Roche will have to pay up even more to get its hands on DNA.
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According to Khouw, one popular trade in the options pits involves buying the March and April 90/95 call spreads. Here options traders are betting that the new bid won't be over $95, but should come in well north of $90. The pick-up in activity on those strikes suggests options traders think a deal should come sooner rather than later.
We will update everyone's favorite takeover play on Options Action.