Roche cut its offer for Genentech Inc, launching a hostile bid which dashed investor hopes of a sweetened offer for the 44 percent of the U.S. biotech group its does not already own.
Roche Holding AG’s new and lower offer for the outstanding shares, pitched directly to shareholders, was a surprise and reflected tougher financing conditions and a drop in Genentech Inc shares, analysts said on Friday.
“We are confident that we will have the financing available when the money is needed,” Roche Chairman Franz Humer told reporters.
Roche is now making a public tender offer at $86.50 per share in cash, valuing the deal at $42 billion, replacing its initial bid that totaled $44 billion.
Roche stock rose 1.5 percent to 162.70 Swiss francs by 1039 GMT as investors welcomed the slightly lower price. Genentech shares in Frankfurt rose 1.9 percent to 65.51 euros ($85.69).
The move comes just days after the world’s biggest drugmaker Pfizer Inc agreed to buy rival Wyeth for $68 billion, backed by a new $22.5 billion loan, indicating debt markets for cash rich pharmaceutical makers are far from dead.
Roche had initially aimed to acquire the remaining shares through a negotiated settlement — an offer rejected by Genentech — and decided to appeal directly to shareholders after further talks failed to reach an agreement, Humer said.
“The plan is to use as financing partly our own funds, and then obviously bonds and then commercial paper and traditional bank financing. We will start by going to the bond market first,” he said.
BIG-SELLING CANCER DRUGS
Buying Genentech would give Roche control of all revenues for blockbuster cancer drugs Avastin and Herceptin, as well as absorbing an attractive portfolio of new medicines, and reflects Big Pharma’s rush to acquire biotech assets to fill sparse new product pipelines.
Roche appeared to be raising the pressure on Genentech, which analysts said could be trying to delay the process until key clinical data on its blockbuster cancer drug Avastin due in April — when positive results could drive up the company’s value.
“By reaching out directly to minority shareholders Roche will soon get an answer from the shareholders what they think is a fair offer,” said Andrew Weiss at Swiss bank Vontobel.
Helvea analyst Karl-Heinz Koch believed the offer should attract interest from Genentech shareholders, saying 80 percent ownership would be enough to integrate the U.S. company.
Koch said a deal at the new price could still be earnings accretive for Roche in 2010 and 2011, even at a debt financing cost of up to 8 to 9 percent.
But Andreas Theisen, analyst at WestLB, reckoned few Genentech shareholders will jump at the offer.
“We believe Roche aimed to stick to its take-out plans, but is also trying to get some extra time until maybe financing conditions improve,” Theisen said.
OPPORTUNITIES IN DOWNTURN
Roche made a fresh round of calls to banks after news of the Pfizer-Wyeth deal emerged, bankers close to the Genentech deal told Reuters this week.
Business leaders meeting in Davos, meanwhile, said they saw opportunities in the global downturn, though leverage is out and a hard-nosed focus on cost cutting is the order of the day.
Roche, which currently owns 56 percent of the Genentech outstanding shares and originally bid $89 per share, pitched its new offer at a premium of nearly 3 percent over the Genentech’s closing price of $84.09 on Thursday, compared with a premium of 29 percent for the Wyeth deal.
The Swiss company declined to give details of how its planned financing would break down.
After the initial announcement in July 2008, shares in Genentech rose to a high of $99.05, but later fell back below the offer price as the credit crisis bit, which gave Roche leeway to lower its bid.
Greenhill & Co is financial advisor to Roche and Davis Polk & Wardell is legal counsel for the tender offer, which Roche expects to commence the tender offer within approximately two weeks.
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