Roche Takes the Gloves Off and Drops Genentech Bid to $41 Billion

---

Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas)--Thanks to the prescience of venture capitalist Robert A. Swanson, who ignored naysayers and glimpsed the vast commercial potential in the recombinant DNA technology pioneered by Dr. Herbert Boyer, the two men met and formed Genentech (NYSE:DNA) (South San Francisco, California) in 1976. It was one of the industry's earliest successful "marriages" between money and science. Fast forward three decades or so and the company now has another suitor in the form of Swiss pharmaceuticals giant Roche. But what started out last year as a friendly offer from a major shareholder has grown to more resemble an acrimonious custody battle over the company's remaining shares.

Roche currently owns 55% of Genentech and last summer offered what translated into roughly $43.7 billion for the remainder. While Genentech respectfully declined the deal at the time, it was generally expected within the industry that a deal of some kind would be struck and completed sometime this year. Roche spoke of its future plans for South San Francisco and its domestic home in Nutley, New Jersey, with Genentech issuing nary a word in denial. Roche's plans call for Genentech to stay at its campus in South San Francisco and operate as an independent unit within Roche. Roche in turn would move its existing commercial operation from Nutley to South San Francisco. Thanks to a strong and positive branding, the Genentech name would be retained for all commercial operations in the United States for the new company.

In the ensuing months as the economy has hit the skids, with layoffs reaching unprecedented numbers and literally every major player in Pharma making a bid for growth through M&As, Roche has decided to up the pressure and drop its price. The formerly friendly negotiations took a decidedly hostile turn with Roche's announcement that the new price would max out at about $41 billion. The offer is now $86.50 for all publicly held shares of Genentech -- $2.50 less than the July 2008 price of $89. And Roche is taking its offer directly to the Genentech shareholders, confident that their response will be more receptive during this time when the current economic roller coaster ride has wiped out what many thought were sure things. The implied fear of more loss may prove to be a powerful incentive to accept the deal.

Roche Group Chairman Franz B. Humer issued a statement on these latest developments that said: "We intend to create unrivaled benefits for our patients, employees and shareholders by combining Roche and Genentech. We are disappointed that the discussions over the last six months between Roche and the special committee of Genentech have not produced a negotiated agreement. We feel it is now time to give the Genentech minority shareholders the opportunity to decide on our offer. Especially in the current market environment the offer provides an opportunity for all public shareholders to achieve liquidity and to receive a fair price for all their shares." Roche plans to finance the transaction by a combination of its own funds, commercial paper, bonds, as well as a traditional bank financing.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.