Updated from 8:08 a.m. EDTSwiss drug company Roche made an offer to take over the stake it doesn't already own in biotech behemoth Genentech ( DNA) 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
Roche expects Genentech's board to establish a committee of independent directors to evaluate the proposal with outside financial and legal advisers. The company proposes that the Genentech Founders Research Center will operate as an independent unit within Roche Group. Based on the 1999 agreement between the companies, a majority of the non-Roche shareholders of Genentech must authorize the merger.