After Genentech rejected its $89 per share bid, Roche will initiate a tender offer at $86.5.

Contrary to expectations, Roche has lowered its takeover proposal for Genentech from $43.7 billion to about $42.47 billion. The company says that within the next two weeks or so, it will begin a cash tender offer at $86.50 per share.

Roche’s offer is subject to it obtaining sufficient financing to support the takeover. The company says that it will fund the transaction through a combination of its own funds, commercial paper, bonds, as well as a traditional bank financing. No one from Roche was immediately available to comment on the financing breakdown.

In July 2008 Roche, which currently owns 55.8% of Genentech, said that it would pay $89 per share, a 8.65% premium over Genentech’s closing price the day before the offer. In August Genentech publicly rejected the offer.

Most expected that Roche would have to raise its bid beyond $100 per share to win over the company with Genentech’s stock climbing to over $90 per share after the offer. The firm’s value began to slide after September, however, and has been between $71 and $89 ever since.

Genentech opened trading today at $82.53, and Roche has decided to side-step Genentech’s board and go straight to its minority shareholders with a lower bid. “We are disappointed that the discussions over the last six months between Roche and the special committee of Genentech have not produced a negotiated agreement,” says Franz B. Humer, chairman of the Roche Group.

“We feel it is now time to give the Genentech minority shareholders the opportunity to decide on our offer. Especially in the current market environment, the offer provides an opportunity for all public shareholders to achieve liquidity and to receive a fair price for all their shares.”

William Tanner, biotechnology research analyst for Leerink Swann, says, “We believe investors should tender Genentech shares given Roche’s $86.50 per share offer as we believe the shares are fundamentally overvalued. Weak third quarter and fourth quarter 2008 results highlight to us that Genentech’s best days may be over.”

If the transaction does go through, Genentech’s research and early development activities would operate as an independent unit within Roche from its existing campus in South San Francisco. Roche’s pharma commercial operations in the U.S. would be moved from Nutley, NJ, to Genentech’s site in South San Francisco. The combined company’s U.S. commercial operations in pharmaceuticals will reflect the Genentech name.

Roche’s Palo Alto Virology R&D activities will relocate to South San Francisco, while its Palo Alto inflammation group will become part of Roche’s Nutley, R&D organization.



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