Swiss drug developer Roche boosted its hostile tender offer for biotechnology pioneer Genentech Inc. to $93 per share Friday, raising the total offer value to $45.7 billion, after its initial offer failed to pick up much support from shareholders.
For weeks, Genentech's board had been calling Roche's $86.50 bid too low, with much of Wall Street saying shareholders likely wouldn't bite at the offer. In its statement Friday, Roche said it received tenders for only 500,000 shares in the tender offer that was set to expire March 12, a tiny fraction of the 44 percent the company needs to take control of Genentech.
As of Feb. 6, Genentech has just over 1.05 billion shares of common stock outstanding, of which Roche owned about 587.2 million. It needs the support from a majority of the other shareholders to complete any deal.
The $86.50 bid had been a surprise to many, following rejection of a $89-per-share bid rejected by Genentech's board in July. The tender offer has been extended to March 20 from March 12.
Funding on Roche's side, though, may still remain an issue. In a Securities and Exchange Commission filing earlier Friday, the company said it had raised about $36 billion through a series of debt offerings, and it calculated the $86.50-per-share bid to cost about $42.1 billion. It said the rest of that funding could be raised through a combination of debt financing, commercial paper, or existing credit facilities, among other methods.
The latest statement from Roche didn't say how the increased offer might affect its ability to raise additional funding.
"Based on conversations with Genentech shareholders, we believe that there is a strong sentiment to bring this process to a conclusion," Franz B. Humer, chairman of the Roche Group, said in the statement. "As a result, we are increasing our price to $93 per share to maximize shareholder participation and will proceed quickly to complete all necessary financing."
Genentech advised its shareholders to take no action on the revised bid. A special committee of the board will make a formal statement soon, the company said.
Avastin study
On Monday, Roche spent a four-hour meeting with analysts detailing long-term sales and research projections to back up its assertion that the company was worth more than the Roche offer. In previous regulatory filings, Genentech said it could be worth up to $112 per share.
Hanging over the talk of Genentech's value has been upcoming study data on the blockbuster cancer drug Avastin's effectiveness in treating early-stage colon cancer. The drug is already approved for various types of breast, lung and colon cancers and is the company's best-selling product. If the latest study is successful, the share price will likely rise, several analysts have said, but the opposite could also hold true.
"We believe that at this price Roche will be successful in tendering more than 50 percent of the minority outstanding shares, as many shareholders will likely prefer to lock-in this price before running the risk of facing C-08 (upcoming Avastin) trial results," Citi analyst Dr. Yaron Werber said in a note to investors.
The company needs to obtain at least 90 percent of the outstanding minority shares, but gaining more than half of them would give Roche leverage in making any additional moves.
Meanwhile, BMO Capital Markets analyst Jason Zhang said it is too early to tell how many shareholders the new bid will win over, but he is more neutral on the boosted bid. He had previously recommended against the prior bid.
"After thoroughly studying Genentech's research and development presentation, we do not think the new bid captures Genentech's long-term value," he said, in a note to investors. "At the same time, we are keenly aware of the downside risk for the stock if C-08 trial results are negative as the shares could trade to the low $70s."
Shares of South San Francisco, California-based Genentech rose $8.41, or 10.3 percent, to $90.10 in afternoon trading. The stock has traded between $66.80 and $99.14 over the past 52 weeks.