New Roche Offer and Genentech Squeeze-Out Ploy Put Focus on April's Avastin Results

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UPDATE: The Wall Street Journal reports that the boards of Genentech and Roche are “near an agreement” on a $95 a share bid.

What are we to make of Roche’s new $93 per share offer for Genentech? BNET previously suggested that market conditions were so rough that Genentech holders should take the low-ball $86.50 offer that Roche made when it went hostile a few weeks ago. Looks like that was wrong!

Roche chairman Franz Humer said two things about the deal. First the press release:

“Based on conversations with Genentech shareholders, we believe that there is a strong sentiment to bring this process to a conclusion. As a result, we are increasing our price to US $93 per share to maximize shareholder participation and will proceed quickly to complete all necessary financing. We now look forward to successfully completing the transaction.”

And then to a Swiss paper:

The improved offer will lead to the final break-through.

Bear in mind that Humer expected this deal to get done at $89 a share last summer, so Humer’s track record of predicting when things will get done is a little shaky.

On the Genentech side, what’s changed is that the company adopted a squeeze-out provision for recalcitrant shareholders. If Roche gets 90 percent of the stock, the remaining 10 percent will automatically be bought out at the offer price plus a premium. The San Francisco Business Times:

If Roche owns 90 percent of the outstanding shares when the deal is consummated, it would make an immediate cash payment equal to the price per share in the offer and a future cash payment based on a valuation

This suggests that Genentech does indeed expect Roche to finally take it over. It’s a sort of “final will and testament” to Genentech’s rebelious shareholder children, if you will.

Genentech has not immediately replied to the deal, but will do so in an SEC filing any day. The board will have one main issue on its mind: Take the money now, or gamble in favor of a positive result from the big Avastin trial (which would make the company more valuable)? The result of that controversial trial is due in April

(Of course, if the trial is a failure it may trigger Roche to rethink its offer … and we’d be back to square one.)

BNET’s take: Genentech’s strategy all along has been to delay the process and hold out for more money. The company was helped by Roche’s inability to line up financing until recently. It may be that holders decided to bet on the Avastin result long ago. See you in April!

Tags: Roche Holding AG, Genentech Inc., Financial Accounting, Investment, Finance, Jim Edwards

Jim Edwards, a former managing editor of Adweek, has covered drug marketing at Brandweek for four years, and is a former Knight-Bagehot fellow at Columbia University's business and journalism schools. Follow him on Twitter or send him an email.

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