Genentech to Roche: Not So Fast

The biotech forms a team to assess the buyout bid and says it's not obligated to agree to a deal with its majority shareholder.
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Genentech (DNA) may not go gentle into that good night.

The South San Francisco-based biotech firm said Thursday night that a special committee of independent directors has been formed to evaluate the

$89-a-share acquisition offer

from

Roche

.

At that same time, however, Genentech appeared to send a shot across Roche's bow, signaling that it may fight any takeover proposal from the Swiss drug giant.

"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 said in its statement.

"In addition, the Affiliation Agreement does not obligate Genentech or the special committee to agree to any specific process or any price based on valuation assessments provided by investment banks," the company added.

Roche currently owns 56% of Genentech under an agreement dating back to 1990. On Monday, Roche said it intends to acquire the remaining shares of Genentech that it doesn't already own for $89 a share, an offer Roche management has said repeatedly is "fair and generous."

Genentech shares have traded well above $89 a share since Monday, however, because investors clearly believe Roche's offer is

too low

and will need to be raised. Genentech shares closed Thursday at $94.65.

Deutsche Bank analyst Mark Schoenebaum, in a note to clients Thurday night, said Genentech's declaration that is under no obligation to accept Roche's offer is important because it "increases the negotiating leverage that Genentech and its minority shareholders will have in the forthcoming negotiations."

The special committee convened by Genentech consists of the company's three independent members of its board of directors: Herbert Boyer, Debra Reed and Charles Sanders.

"The special committee intends to proceed in a timely manner to review the Roche proposal, which was both unsolicited and unexpected," said Sanders, the committee chairman, in a statement. "The outcome of this process has not been pre-determined, and there can be no assurance that the special committee will approve any transaction with Roche."

Roche management informed Genentech Chairman and CEO Arthur Levinson of its intentions to acquire 100% of the company on Sunday, just hours before making the plan public.

On conference calls Monday and at an investor/analyst meeting Tuesday, Roche said repeatedly that as majority owner of Genentech already, it didn't need to offer a substantial takeover premium since Genentech was essentially being taken private.

While Roche has said that it will seek to preserve Genentech's more freewheeling corporate culture, the mood on Genentech's corporate campus was downbeat, even resentful, of Roche, according to several Genentech employees who spoke on the condition that they remain anonymous.

Employee morale may brighten, however, now that it appears Genentech plans to rage, rage against the dying of the light.

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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