Global Insight Perspective | |
Significance | A special committee appointed by Genentech's board has endorsed initial calls from investors that the deal undervalued the biotech firm's potential. |
Implications | Despite the rejection, the committee has indicated that it will consider offers that reflect the value of the firm, suggesting that the offer could be a preliminary bid for acquiring the 44.1% remaining stake in Genentech. |
Outlook | The coming months will see intense negotiations between Roche and Genentech over the latter's price tag, which could well inch closer to US$48–49 billion. |
Swiss pharma major Roche's bid for Genentech (U.S.) has drawn a "no" verdict from the U.S. firm's special committee, appointed by its board of directors. The committee felt that Roche's US$43.7-billion offer for the remaining 44.1% stake in the biotech firm was "undervalued" (Roche currently holds a 55.9% stake in Genentech). In doing so, the committee has endorsed shareholder concerns over the proposal. However, the committee set out some room for negotiations by clarifying that the panel "would consider a proposal that recognizes the value and reflects significant benefits accruable to Roche". The committee's chairman, Dr Charles A. Sanders, has maintained that the firm's financial and clinical momentum will continue, stressing that its relationship with Roche will be sustained. The Swiss firm has responded by stating that the offer is "fair and generous", reports the New York Times.
Genentech: Top Products in U.S. Market, 2007 | ||
Brand | Net Sales (US$ mil.) | % Change Y/Y |
Avastin | 2,296 | 32 |
Rituxan | 2,285 | 10 |
Herceptin | 1,287 | 4 |
Lucentis | 815 | 114 |
Xolair | 472 | 11 |
Tarceva | 417 | 4 |
Source: Genentech | ||
Outlook and Implications
The subtle rebuff from Genentech has opened up possibilities for further negotiations between the two firms, mainly in light of the committee's statement suggesting that it will consider further proposals. There have also been other suggestions indicating that the acquisition proposal, besides the price issue, is an accepted development. This includes the committee's approval of the implementation of a broad-based employee retention programme to address employee concerns over the proposal. Although once acquired Genentech will be fully owned by the Swiss major, Roche has indicated that the firm will be able to maintain its independence. However, the level of independence is unclear, and there is still some ambiguity as to how this will be achieved.
At the heart of the deal is Genentech's price tag, with Roche having offered US$89 per share for the remaining 44.1%. However, following Genentech's rejection of the offer, media reports have speculated that potential premiums of up to 12% of the offer price per share could be considered. This would effectively push the total consideration of the acquisition closer to US$48–49 billion. Although Roche has maintained that the price tag is fair, earlier acquisition patterns suggest that Roche may be willing to be financially flexible. The acquisition of Genentech would bring major additions to Roche's present product portfolio and pipeline. Avastin, Tarceva, and Herceptin, and others would add a significant upside to its top-line growth and solidify its cancer portfolio.
Related Articles
- United States: 28 July 2008: Genentech Sets Up Panel to Consider Roche Buyout Offer as Shareholders Sue over "Unfair" Deal
- Switzerland: 21 July 2008: Roche Offers US$43.7 bil. to Take Full Control of Genentech; Operating Income Falls 7% in H1