Roche Wants to Buy Genentech -- Again

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In what could become one of the biggest biotech deals ever, Roche announced this morning that it was offering to pay $43.7 billion for the remaining Genentech (NYSE: DNA) shares it doesn't already own.

Roche and Genentech have had a long and complicated relationship since the 1980s, after Genentech outlicensed one of its first approved drugs to Roche. In 1990, Roche upped the ante, acquiring a nearly 60% stake in Genentech (technically a merger). In exchange, Roche paid Genentech nearly $500 million up front, and got the option to buy the remaining outstanding Genentech shares later at a predetermined price.

Roche exercised this option in 1999, buying the remainder of Genentech for a split-adjusted $10 and change per share. Barely more than one month later, Roche brought Genentech back onto the public markets in its current form, after selling another chunk of its Genentech stake at barely more than a split-adjusted $12 a share. In 2000, it again put another large portion of its Genentech stake onto the public markets, but kept a 58% ownership interest in the company.

If Roche's offer today goes through (subject to Genentech shareholder approval), Roche would pay $89 per share to acquire the remaining 44% of Genentech shares not under its current control -- its second total buyout of the company in less than 10 years. This offer represents an 8.8% premium to Genentech shares' Friday price.

Last week, Genentech released fairly positive second-quarter financial results. Both of Genentech's top two cancer drugs, Rituxan and Avastin, are growing sales like gangbusters, even against rivals compounds from drugmakers like GlaxoSmithKline (NYSE: GSK), Bristol-Myers Squibb (NYSE: BMY), and ImClone Systems (Nasdaq: IMCL).

Its relationship with Genentech has always given Roche first dibs on marketing any newly approved Genentech drug outside the U.S. This sweetheart deal for Roche gave it the marketing rights to blockbuster compounds like Avastin and Herceptin. But it was set to expire in 2015, allowing Genentech to offer newly approved compounds to other partners. Keeping those potentially lucrative future compounds in its pocket may largely explain why Roche wants to bring Genetech fully back into the fold.

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