Roche Goes Hostile in Genentech Bid; Still Has No Financing Lined Up

Roche, its pockets empty, has gone hostile in its bid for Genentech and offered holders a lower bid than its initial offer last summer.

Roche is offering $86.50 a share, a 2.8% drop from the $89 it originally offered. Roche does not have financing lined up for the deal, Reuters reported.

The move indicates that the couterintuitive view — that the Genentech deal price was falling, not rising as the credit crisis bloomed – was, perhaps, the correct one. BNET reported that possibility back on Dec. 18.

Yesterday, we noted that Roche was out in the credit market begging for $45 billion that it doesn’t have. Today, the company admitted it still did not have financing lined up, after more than six months of trying. Reuters:

“We are confident that we will have the financing available when the money is needed,” Roche Chairman Franz Humer told reporters.

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.

You have to admire his moxie. The move puts Genentech holders in an interesting position. $86.50 is still a nice premium over the $70 or so it was fetching prior to the deal. It’s not the $100 holders thought they might get. And it’s not the $95 offer that was recently discussed.

Analysts are mixed. Barron’s:

Leerink Swann analyst Bill Tanner advised investors this morning to grab the offer, arguing that Genentech’s stock, which fell 3.9% today to 80.82 a share, is overvalued. If the Avastin clinical trial data fails to impress, then Genentech’s share price could fall into the $60s, he predicted.

… at Zacks Investment Research, Jason Napodano says “Roche is trying to pull the wool over the eyes of Genentech shareholders.”

“I do not think it will work,” he added. “Roche is trying to get this deal done before the adjuvant colon cancer data comes out and Genentech shareholders are well aware of that. I don’t know why they would tender their shares for $86.50, which is only 10% above today’s price, when they can get closer to $95 to $100 a share if they wait.”

Bloomberg:

… according to Rocco Schilling, a credit analyst at UniCredit SpA … The approach comes on the heels of Pfizer Inc.’s $68 billion planned takeover of Wyeth announced on Jan. 26, which was raised by 31 percent.

“To make this offer successful, Roche has to raise the share price they want to pay to at least $100 a share,” Munich- based Schilling said. “The current widening of credit-default swap levels is mainly driven by hedging activities from lending banks.”

BNET’s take: Genentech holders should take the offer. Indeed, they should have taken it at $89. The world today is very different than it was back in the summer. To reject the offer means hoping that Novartis or Bristol-Myers Squibb or AstraZeneca (or any of the other ailing giants) will step in with a competing offer and bid up the price. But if Roche can’t get financing, will they be able to? Sure. It’s certainly possible. And investors can afford to wait a few days to see if a white knight shows up carrying a shield with “$90+” written on it.

However, in this recession, a sensible investor should seriously consider taking cash today over pie-in-the-sky-tomorrow. The actual price of a stock is what the top bidder is offering, not what an analyst’s spreadsheet says it ought to be in theory. Right now, Roche is the top bidder.

• BNET’s Previous Roche-Genentech Coverage:
• Roche Begging for $45 Billion It Doesn’t Have
  
• Roche-Genentech Deal: $95 Bid Coming by February
• Could Roche-Genentech Deal Price Actually Be Getting Lower?
• Roche Doesn’t Have Enough Money for Genentech Deal
• Roche Genentech Deal Conspicuous By Its Absence
• A Worst-Case Scenario in the Roche-Genentech Deal