Genentech and Roche May Be Close to Deal
Roche brought Genentech back to the negotiating table this week by increasing its offer for outstanding shares to $45.7 billion—$93 a share—and extended the offer to midnight Friday, March 20.
“Based on conversations with Genentech shareholders, we believe that there is a strong sentiment to bring this process to a conclusion,” said Franz B. Humer, chairman of the Roche Group, in a press release. “We are increasing our price to $93 per share to maximize shareholder participation, and will proceed quickly to complete all necessary financing.”
Analysts say the extra $6.50 per share was probably enough to make Genentech management reconsider the offer.
“We believe that Roche has upped their tender offer following meetings with Genentech shareholders to ensure a speedy conclusion to the acquisition,” said Alexandra Hauber, a JPMorgan pharmaceuticals analyst. “This new tender offer has a good likelihood of being successful.”
On Monday, The Wall Street Journal reported that the deal was on the brink of being closed at $95 per share ($46.7 billion). Rumors that the delay is due to a legal debate about how long Roche’s tender offer should stay open also surfaced Wednesday afternoon, but both companies remain quiet about negotiations.
“My guess is that Genentech realizes that at $93 per share there could be enough shareholders tendering for the deal to go through without their consent. I think it’s to the point now where they’re saying ‘Let’s be safe and agree to a price,’” said Jason Napodano senior biotech analyst at Zacks Investment Research.
Napodano also said he wouldn’t be surprised if the deal was infused with caveats or outlined by milestones Genentech hopes to hit within the next couple of months. Landmarks that could raise the price to tendering shareholders before the deal is closed include positive Avastin (bevacizumab) colon cancer trial results in spring, and FDA approval for Avastin in brain cancer.
“I don’t know that that kind of negotiation is going on, but there have been several pharma-biotech deals or biotech-biotech deals over the past several months where that kind of negotiation has happened,” said Napodano. “It would not surprise me to see something like that being baked in.
Shareholders have been on a bidding rollercoaster since last July, when Roche made its first offer to Genentech for $89 per share. A Genentech special committee fired back about three weeks later with a distinct “no,” claiming that the proposal severely undervalued the company. Then, in late January, Roche went to stockholders with a slightly lower bid of $86.50. Investors didn’t take the bait, forcing Roche to up its offer.
If struck, this deal could be a breath of fresh air in the current storm of pharma layoffs and cost cutting. According to Napodano, the merger is an old-fashioned courtship. “I don’t know that the synergies or the cost-cutting are going to be great; I don’t think that’s the emphasis for the merger. I think Roche just really sees Genentech as the crown jewel of biologics, and wants to be 100 percent owner.”
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