Roche made good on its promise late Monday to launch a hostile $86.50 a share offer for the 44 percent of Genentech it doesn't already own, after an independent board said Genentech was worth $112 a share, based on the company's pipeline products, sales growth and tax rates.

Genentech's directors told Roche in December that they would consider selling the remaining stake in the company for $112 a share after refusing to put a value on it since the two companies began merger discussions last summer, according to behind-the-scenes discussions that were made public on Monday. At that price, the cost of Roche's buyout would be about $52 billion.

Unable to reach a deal with the Genentech board after first proposing an $89-a-share takeover last July, Roche said in January it would go directly to Genentech's stockholders through a tender offer. However, a special committee of Genentech's board members urged shareholders on Monday to take no action on the offer. The committee said it would issue a formal position on the offer within 10 business days.

Roche also said in the filings on Monday that after buying tendered shares, it planned to exercise its right to increase its representation on Genentech's board to account for its 100 percent stake in the company, which would give it a majority on the board. It now holds 3 of 7 seats.

In Monday's filing with the Securities and Exchange Commission, Roche said Goldman Sachs, which has been representing the Genentech board committee, initially refused to place a value on the company until Roche raised its offer.

The tender offer expires at midnight March 12, but Roche has the option to extend it.

While Roche originally bid $89 a share for Genentech, it lowered its asking price to $86.50 due to the difficulty in securing credit to finance the acquisition, Roche said.

Genentech shares were at $82.70 in Monday trading on the New York Stock Exchange, below Roche's offer. The stock hasn't traded above the original July offer of $89 a share since September because of worries that Roche would not be able to borrow money to finance the deal.

Roche said one reason it was paying less than Genentech is asking was that it was less optimistic that Genentech's blockbuster cancer drug Avastin, would be successful in trials for colon and lung cancer after surgery. The drug currently is approved only to treat cancers that have spread or recurred.

If the drug is successful in clinical trials, the new indications could add more than $1 billion to sales of Avastin, which were $2.7 billion in the United States in 2008.

Analysts expect many stockholders will not tender their shares on the expectation that if Avastin succeeds in colon cancer trials in April, Genentech's shares will climb and will be worth more than Roche is asking for Genentech.


Sources: Genentech, Roche Holdings, NYSE data.

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