DNA, Roche Analysts Show Their Loyalties

Sell-side analysts covering the takeover battle between Roche and Genentech show their allegiance.
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Like play-by-play announcers who tend to "root root root" for the home team, sell-side analysts covering the ongoing takeover battle between





know who butters their bread.

Analysts who cover Genentech tend to favor the biotech firm and believe that Roche's $86.50-a-share hostile tender offer is too low.

Likewise, Roche analysts, who tend to work from Europe, are more inclined to side with the Swiss drug giant, believing that Genentech is overstating its valuation.

And this discordance of opinion even applies to Genentech and Roche analysts employed by the same investment bank.

Wall Street awoke Tuesday morning to

new details about the stalled negotiations

between the two drug companies, disclosed by Roche in tender offer documents filed with the

Securities and Exchange Commission

. Almost immediately, analysts began to opine, with the line of demarcation clear depending on which side of the Atlantic they sit.

Citibank's U.S. biotech analyst Yaron Werber has a buy rating on Genentech and a $96 price target. His take on Roche's hostile tender offer:

"We do not believe the majority of investors will surrender their shares at $86.50 before adjuvant CRC data is released," he wrote Tuesday morning, referring to the ongoing Avastin adjuvant colon cancer study, which is expected to have results available in April.

Meanwhile, Werber's Citibank counterpart in Europe, Mark Dainty, also issued a note Tuesday in which he went through 12 major points of disagreement between Roche and Genentech. On eight of the items, Dainty favored Roche; the remaining four he deemed "arguable." In other words, on no points of disagreement between the two companies did Dainty side with Genentech.

"Roche raises valid points in its defense and we agree that no control premium need be paid to the minorities

Genentech's minority shareholders so see a large uplift as less likely," Dainty writes. He has a hold rating on Roche and a price target of 155 Swiss francs.

Staying in Europe, J.P. Morgan's Roche analyst Alexander Hauber told clients that Genentech's special board committee "may have a hard time providing a sound rationale for Genentech shareholders to reject Roche's tender offer in their upcoming position paper," adding that the $112 valuation offered by Genentech's board is "stretched."

Not so, says J.P. Morgan lead biotech analyst Geoffrey Meacham, who while sitting in his New York office Tuesday told clients: "In our view, the Roche model is unduly conservative, while Genentech's is a mixture of realistic and aggressive, but overall we believe it supports a $100-plus deal price."

Meacham added: "We believe that Roche is committed to the acquisition and hence will ultimately have to increase its bid (either tender or negotiated) to close the deal."

Hauber has an overweight rating on Roche, while Meacham, not surprisingly, has the same rating on Genentech.

There are similar disagreements at Morgan Stanley. In the U.S., biotech analyst Steve Harr reiterated his overweight rating and $102 price target on Genentech on Tuesday, stating that he expects the company to vigorously defend its $112-a-share valuation target.

But Morgan Stanley's European drug analyst Andrew Baum is equally enthusiastic for Roche's point of view, calling Genentech's $112-a-share self-evaluation "not supported" and "overly optimistic." Baum has an overweight rating on Roche.

Like a baseball announcer who finds it difficult to slam the team he covers for 162 games a season, analysts, too, seem to have trouble saying anything nice about the other guy.

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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