Roche Wins Ventana with Raised Bid of US$3.4 bil.

Pharmaceutical company Roche (Switzerland) and U.S. diagnostics firm Ventana Medical Systems have signed a definitive merger agreement, under which the Swiss giant has increased its tender offer to buy all of Ventana's outstanding common stock to US$89.50 per share in cash, or an aggregate of about US$3.4 billion on a fully diluted basis. According to the two companies, the new offer gives a premium of 4.9% on Ventana's closing price on January 18 2008, a 19.3% premium on Roche's initial offer of US$75 per share on June 27 2007, and a 72.3% premium on Ventana's closing price on June 22 2007—the last trading day before Roche's offer was announced. The new offer will expire on February 7 2008 and is subject to conditions. One of these is that Roche should hold a majority of outstanding common shares on a fully diluted basis by the deadline. Under the terms of the agreement, Ventana's board of directors will recommend that their shareholders tender their shares to Roche, while the U.S. company will also remained based in Arizona.

The announcement of a friendly deal between the two companies puts an end to Roche's hostile takeover bid, which began in June 2007 (see Switzerland: 26 June 2007: Roche Makes Hostile Takeover Offer for Tissue-Based Diagnostics Firm Ventana Medical Systems). At the time, Roche offered US$75 per Ventana share in cash, after the two companies failed to negotiate a deal. Ventana's board believed that the offer undervalued the company's current business and future potential, especially in the fast-growing cancer-diagnostics segment, and consistently urged shareholders not to tender their shares to the Swiss company. Since last June, Roche has shown persistence by extending the offer three times, while Ventana signalled its potential interest by opening its books to Roche (see Switzerland: 20 September 2007: Roche Extends Time for Ventana to Decide on Hostile Takeover Offer and Switzerland: 14 November 2007: Roche Makes Progress in Ventana Bid and Switzerland: 17 January 2008: Roche Extends Offer Period for Possible Ventana Acquisition).

Outlook and Implications

The deal comes shortly after Roche announced it was extending the offer period for Ventana to March 14 2008, which prompted Ventana's board to reiterate its negative stance on the offer. The increased bid was not unexpected, as Ventana's share price has stayed above the US$75 mark since the initial offer and the U.S. firm was confident that Roche would acknowledge that its offer was "inadequate" after examination of the books. Roche's revised bid probably results from a combination of the above, although it also reflects the strategic importance of the diagnostic firm for the Swiss group. Ventana generated revenues of US$238.2 million in 2006 and Roche estimates that the value of the tissue-based testing market—where Ventana is the world's leader—grows by 10% a year. The value of the market currently stands at US$1 billion.

Roche has been keen to increase its diagnostic division's capabilities (see Switzerland: 19 June 2007: Roche to Enter Microarray Market with Acquisition of NimbleGen) and the acquisition of Ventana could also boost revenues in this area, which in 2006 stood at 8.7 billion Swiss francs (US$7.88 billion). Moreover, Ventana's tissue diagnostic tools, especially in the fields of oncology and infectious diseases, fit well with Roche's portfolio of drugs.