Genentech Says Employee Plan May Cost $371 Million

Biotechnology giant Genentech said it may spend $371 million for a bonus plan to keep its workforce during the $43.7-billion takeover bid by its largest shareholder Roche Holding AG, which has held a 55.9-per cent stake since 1990.

The size of the retention plan, assuming all employees remain to receive their full payment, is in lieu of the value of the stock options which were expected to be granted in the company's 2008 option grant programme.

The retention and severance plan adopted by a special board committee for the company's 10,700 employees, would make CEO Arthur Levinson eligible for $8.74 million on 30 June  2009, based on a comprehensive market analysis and comparison, Genentech said in a regulatory filing along with details of severance packages for employees who would lose their jobs after an acquisition. 

Genentech said the bonus programme would cost it about 22 cents a share in earnings, spread over three years. Had the 2008 stock option grant programme been implemented instead, the estimated GAAP EPS impact would have been approximately 23 cents per share, spread over six years from 2008-2013.

The retention bonuses will be paid whether or not the merger goes through, and will cost Genentech 22 cents a share from 2008 to 2010 if fully paid, under the plan, meant to provide continuity and stability by addressing employee concerns created by the Roche proposal.

Genetech, with its strong an entrepreneurial culture and scientific talent pool, is reputed to be the best drug developer in the biotechnology sector. It has provided Roche with its best-selling Rituxan, Avastin and Herceptin cancer therapies and the deal will create the seventh-largest drug firm by market share in the US, with more than $15 billion in annual revenues.