Shares of Ventana Medical Systems soared on Tuesday, on news that Roche Holding made a $3 billion tender offer for the company.
Ventana's board told shareholders to take no action at this time in response to the hostile takeover bid so that it can review the offer. The board said it plans to make a recommendation to shareholders within 10 business days.
Roche said it still hoped its hostile bid for Ventana could turn friendly, but declined to say whether it would sweeten the deal.
Analysts said Roche's bid, which it launched after efforts to negotiate a friendly deal were rebuffed, looked expensive but made strategic sense.
Roche Chief Executive Franz Humer said he aimed to continue the group's build-up of its diagnostics division beyond the Ventana deal through in-house development and the acquisition of technologies.
"We've offered a very full premium and price and I would not speculate in any other direction," Humer told journalists.
The proposed acquisition would further boost Roche's diagnostics or medical testing unit, where it has already made a series of small- to mid-sized acquisitions this year.
The Basel-based company has agreed to buy 454 Life Sciences from Curagen, as well as U.S.-based BioVeris and privately held NimbleGen.
Roche's offer of $75 per share in cash represents a 45% premium to Ventana's closing stock price of $51.74 on Monday on Nasdaq. Ventana shares jumped 52% to $78.75, signaling speculation a richer proposal would emerge.
Participation certificates in Roche, its most widely traded form of equity, were marginally higher at 212.10 Swiss francs, ahead of the Swiss blue-chip index which was 0.6% lower.
Acquiring Ventana, which specializes in tissue-based diagnostics, would give Roche, already one of the world's biggest diagnostic companies, access to technology that helps researchers and doctors better select the right drugs for individual patients.
That emerging concept, known as personalized medicine, could also reduce the costs and risks of developing drugs.
Analysts said the deal fitted Roche's expansion plans and the large premium also signaled the strategic importance of diagnostics.
"The addition of Ventana would help Roche to build a strong position in cancer diagnostics, an area where Roche has not been very present in the past," Vontobel analyst Karl-Heinz Koch said in a note.
"There is a strong strategic logic as Roche is the world leader in cancer treatments, particularly with targeted treatments, which require increasing use of cancer diagnostics to optimize treatment choices."
Although the full benefit of integrated diagnostics and pharmaceuticals is probably still years away, the deal would bring Roche close to that goal, Kepler Equities analyst Denise Anderson said.
Roche said the deal would be earnings positive in two to three years on an operating level, and that would turn positive for core earnings per share within four years.