Updated from 8:08 a.m. EDT
Swiss drug company
made an offer to take over the stake it doesn't already own in biotech behemoth
for $89 a share, or $43.7 billion.
Many observers on Wall Street will likely expect Genentech investors to view the bid as low, but they also probably see it has a preliminary approach. As evidence, shares of South San Francisco, Calif.-based Genentech, which closed at $81.82 on Friday, were surging past the Roche price in premarket trading Monday, rising 18% to $96.60.
Roche owns roughly 55.9% of the largest biotech by market cap. The proposal for the remaining 44.1% is an 8.8% premium to the company's closing price on the last trading day of the prior week and a 19% premium to the price a month ago.
Shares of Genentech have traded between $65.35 and $82.50 in the past year.
For Roche's part, the acquisition is expected to generate pretax cost savings of roughly $750 million to $850 million annually and add to earnings per share in the first year after the deal closes.
"In our view, the financial/operational synergies are clear," wrote JPMorgan analyst Geoffrey Meacham in a research note to investors. "That said, we believe the offer substantially undervalues Genentech's pipeline, particularly the Avastin opportunity for adjuvant colon as well as breast, prostate and [non-small cell lung cancer]."
Roche said on a post-announcement conference call that the $89-a-share price was fair, however, Meacham expects the company to raise the price.
Lehman Brothers analyst Jim Birchenough said that comparable deals support a Genentech counterproposal of $120 a share and estimates an ultimate purchase price of roughly $105 a share.