Genentech: Roche Bid Too Low

The biotech company, however, remained open to a deal for the right price.
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Genentech

(DNA)

said Wednesday in a "friendly" letter that its special committee found that Roche's bid for complete ownership substantially undervalues the company.

The largest biotech company by market capitalization, known for its science-first corporate culture, also approved a broad-based employee retention program to protect its signature talent amid concerns sparked by Roche's advances.

Genentech shares have traded well above Roche's offer of $89 a share -- they opened at $97 on Wednesday -- as the Street has broadly expected the companies would arrive at a higher price.

Roche has said repeatedly that its 56% stake in Genentech means it doesn't need to offer a substantial takeover premium because Genentech was essentially being taken private.

Genentech said Wednesday its special committee of the Board of Directors unanimously and officially doesn't support the offer of $89 a share, but would consider a proposal that recognizes the value of the company.

A Genentech spokesperson said the employee retention program will be composed by a number of items, including a cash retention bonus in lieu of the 2008 stock option program, and an enhanced cash severance payment, health benefits coverage and acceleration of stock options under certain conditions. The company said it will provide more details in an 8-K filing.

Deutsche Bank analyst Mark Schoenebaum said in an email to investors Genentech's initial response contained no major surprises. "We would like to point out that the Genentech press release appears friendly to us," he wrote. "Thus, consummation of a deal continues to seem likely to us.

In a prior statement, on July 24, in which the company announced that it would convene the committee, it said, "Neither Genentech nor the special committee has any obligation under the Affiliation Agreement between Genentech and Roche, or otherwise, to agree to a transaction."

Genentech shares were up 68 cents a share, or 0.7%, at $98.53.