Edited by Andrew Ross Sorkin
February 10, 2009
Genentech’s directors told Roche in December that they would consider selling their company for $112 a share, an amount much higher than Roche was willing to pay, according to details of the negotiations made public on Monday.
The details, the first public indication of the behind-the-scenes discussions between the companies, are contained in documents related to the tender offer by Roche on Monday, The New York Times’s Andrew Pollack writes. Roche is seeking to buy the 44 percent of Genentech it does not own for $86.50 a share in cash, or about $42 billion.
Unable to reach a deal with the Genentech board after first proposing an $89-a-share takeover last July, Roche late last month said it would go directly to Genentech’s stockholders through a tender offer.
Roche also said in the filings on Monday that after buying tendered shares, it planned to exercise its right to increase its representation on Genentech’s board to be proportional to its stake in the company, which would give it a majority on the board. It now holds 3 of 7 seats.
A special committee of Genentech’s board that has been dealing with Roche urged shareholders on Monday to take no action on the tender offer. The committee said it would issue a formal position on the offer within 10 business days. The committee previously criticized Roche’s intention to make a tender offer as a “unilateral and opportunistic step.”
Genentech’s shares closed at $82.70 Monday, down 30 cents, but recovered the same amount in after-hours trading.
In Monday’s filing with the Securities and Exchange Commission, Roche said Goldman Sachs, which has been representing the Genentech board committee, initially refused to place a value on the company until Roche raised its offer.
Greenhill & Company, which represented Roche, told Goldman as early as Oct. 2 that Roche was getting frustrated and might resort to other options. In November, Genentech presented a long-range business forecast, which was used to justify a value of the company at $112 to $115 a share.
Roche said that forecast was significantly more optimistic than Genentech’s previous long-range plan, which had been provided to Roche in June. Roche said it disagreed with many of the assumptions in the new Genentech forecast. It also said the economic downturn and credit crisis had “fundamentally altered” expectations and valuations placed on Genentech and other biotechnology companies since it made its initial offer.
Roche said it was somewhat less optimistic than Genentech that Genentech’s drug Avastin would be successful in trials testing it as a treatment for colon and lung cancer after surgery. The drug currently is approved only to treat cancers that have recurred or spread. Postsurgical use could add more than $1 billion to sales of Avastin, which were $2.7 billion in the United States in 2008.
Analysts expect many stockholders will not tender their shares, on the expectation that if Avastin succeeds in the adjuvant colon cancer trial in April, Genentech’s shares will shoot up well past Roche’s offer.
The tender offer expires at midnight March 12, but Roche has the option to extend it.
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