Will It Ever End?

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Surprise, surprise. Genentech's (NYSE: DNA  ) Special Committee of its Board of Directors recommended that investors reject Roche's most recent tender offer. Was anyone expecting anything else?

Here's a quick review of the soap opera that's taken place over the last seven months.



Stock Movement

July 21, 2008

Roche offers $89 per share.

Shares jump to more than $93.

August 13, 2008

Genentech rejects the offer, but it's willing to negotiate.

Shares have moved to $98 and stay there through August.

August 2008 - December 2008

Nothing -- not a good thing for investors in M&A deals.

Shares slide as low as $70 on worries that Roche won't be able to get financing. Note to Roche: Next time, set up your financing ahead of time like Pfizer (NYSE: PFE  ) did with its acquisition of Wyeth.

January 30, 2009

Roche plays hardball with a $86.50-per-share tender offer to shareholders.

Shareholders still don't think it'll get done, as shares hover around $82.

February 9, 2009

Roche launches tender offer and claims Genentech wants $112 per share.

Genentech driving a hard bargain doesn't impress shareholders, and the stock still trades for far less than $86.

Genentech is like a rebellious teen that Roche should have never let out of its grasp in the first place.

What's next?
I think it's likely that Genetech will wed Roche's first wife, who also happens to be Genentech's sister-in-law.

In all seriousness, I have no idea when the soap opera will end. It seems unlikely that investors will turn over their shares for $86.50, if the company they're invested in thinks the shares are worth more than $100. But then again, that would still be a premium on what investors could get in the open market right now.

It's hard for Genentech to prove its worth with only one bidder; at least Carl Icahn could bust out Eli Lilly's (NYSE: LLY  ) bid for ImClone to tell Bristol-Myers Squibb (NYSE: BMY  ) to take a hike. With Roche being a majority owner of Genentech, the biotech isn't in nearly as good a position.

It seems like this potential merger could drag on as long as the Sirius XM Radio (Nasdaq: SIRI  ) merger or BHP Billiton’s (NYSE: BHP  ) pursuit of Rio Tinto (NYSE: RTP  ) . However, there's some precedent for getting this deal done. Roche eventually sat down at the table and upped its bid for Ventana Medical Systems after investors rejected its lowball tender offer.

The same outcome seems likely here. The only question is whether Genentech's teen angst will keep the drugmakers from coming to a deal between $86.50 and $112.

Pull up a chair -- here's more Foolishness on never-ending sagas:

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is a former Income Investor selection and current Inside Value pick. The Fool's disclosure policy was just seen commiserating with an SEC document down the hall.

Read/Post Comments (4) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 25, 2009, at 2:39 PM, dstnewman wrote:

    Nothing like name dropping a 13 cent stock in order to get hits... Fool at its BEST!

  • Report this Comment On February 25, 2009, at 4:19 PM, kkosmo wrote:

    Hmm, Genentech has no leverage? 1) 40% of Roche's revenue comes from Genentech products, which will sharply fall off in 4 years when their current agreement expires. 2) Roche has already significantly restructured their US operations based on acquiring Genentech. 3) Genentech has the pipeline and current products that a big pharma needs. And Genentech had proven to deliver on its pipeline. 4) Genentech is the best run and most promising biotech/pharma company in the world. Genentech does not need Roche as much as Roche needs Genentech. The list can go on. The only thing Roche has going for it is no one else can bid on Genentech. And if Roche did not already own 55%, do you think anyone else would offer $100b+ for it?

    It is indeed wise of Genentech to ask for a premium (even an absurd one). Getting short term gains from a sale now will negate years of better future growth.

  • Report this Comment On February 25, 2009, at 5:27 PM, TMFBiologyFool wrote:

    "And if Roche did not already own 55%, do you think anyone else would offer $100b+ for it?"

    That's exactly my point. With only one bidder, the value of Genentech is whatever Roche is willing to pay. Management and shareholders can choose to take it or not, but proving that Genentech is worth the premium (that shareholders aren't willing to pay) is difficult.

  • Report this Comment On February 26, 2009, at 8:30 PM, crca99 wrote:

    Why does this article sound snarky? I don't follow the analogy of DNA as rebellious teen. Roche made an offer expected eventually but not at that moment. DNA countered, Roche waited a long time, then countered with a lower bid. I'm a shareholder who speaks occasionally with an employee. Why didn't Roche wait less and counter with $95-100? Deal would be done. Is it Roche who suddenly lost value of assets that would have been used for payment?

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