Genentech tells shareholders to reject Roche bid

24 February 2009

A special committee of Genentech Inc's board on Monday urged shareholders to reject Roche's $42 billion bid to acquire the portion of the company it does not already own, saying it substantially undervalues the US biotechnology giant.

Roche Holding AG, the Swiss pharmaceutical giant that already holds a 56 per cent share in Genentech, his mounted a hostile full takeover bid for the company. Genentech says the $86.50 a share tender offer is too little, estimating that revenue will increase to $38.8 billion in 2024 from $13.4 billion in 2008 and operating profit will rise to $16.9 billion from $6.47 billion.

Roche is seeking to gain full access to the California-based Genentech's cancer drugs, including its top-seller Avastin. Its first offer, at $89 a share, was rejected in August as too low. Genentech said the bids don't recognize the value of its innovation, noting that 55 per cent of Roche's drug sales are generated by jointly developed products, a huge increase from five per cent a decade ago.

Genentech's filing was its first extended public response to Roche's view of the failed negotiations, which the Swiss drug maker filed on 9 February 9. Genentech will defend its position at a meeting scheduled for 2 March with analysts and investors. Roche's tender offer is set to expire March 12.

Genentech said its special committee of directors created to negotiate with Roche has tried since August to demonstrate that the company's value, which it put at $112-$115 a share, exceeded Roche's offers. To ''bridge the valuation gap'' Genentech invited a deal involving ''alternative consideration and transaction structures,'' according to yesterday's letter to shareholders. The company declined to elaborate on the filing.

Though Genentech has been willing to negotiate a counterproposal, ''Roche was consistently dismissive of these efforts and the information we provided and repeatedly refused to increase the price at which it sought to acquire the shares,'' according to the company's filing.