By Jennifer Yousfi
Managing Editor

Roche Holding Ltd. (OTC ADR: RHHBY) yesterday (Monday) announced a $43.7 billion offer for the 44% of Genentech Inc. (DNA) it doesn’t already own.

Switzerland-based Roche’s $89 per share cash offer is almost a 9% premium over San Francisco-based Genentech’s Friday closing price. Roche first acquired 60% of Genentech for $2.1 billion in a 1990 deal. Currently, Roche owns approximately 56% of outstanding Genentech shares.

Roche will finance the Genentech deal through a combination of new debt and $9.8 billion (10 billion Swiss francs) in cash.  

“The transaction will create a unique opportunity to evolve Roche’s hub-and-spoke model into a structure that allows us to strengthen the focus on innovation and accelerate the search for new solutions for unmet medical needs,” Roche Chairman Franz Humer said in a company statement announcing the offer. “Combining the strengths of Roche and Genentech will create significant value and result in benefits for patients, employees and shareholders.”

This offer represents a reversal in Roche’s prior treatment of subsidiaries. In the past, Roche has opted to allow subsidiaries such as Genentech and China-based Chugai Pharmaceutical Co. Ltd. to maintain some autonomy. However, Roche feels Genentech’s advancement from a biotech research operation into a more full-service pharmaceutical firm makes now the right time to buy.

“There has always been a strategic view that Genentech should remain independent to guard its ability to innovate,” Andreas Theisen, who covers the pharmaceutical sector at WestLB Equity Markets in Düsseldorf, told The International Herald Tribune. “Still, from a business perspective, it’s not an irrational move. Roche has its own U.S. infrastructure, so there are straight dollar benefits to combining the two businesses.”

In addition to extending Roche’s presence in the U.S. market, the company expects cost saving of $750 million – $850 million each year after the Genentech acquisition.

“We will be better able to share technologies and expertise in pharmaceuticals and diagnostics across the group and broaden the mutual access to the external innovation networks of both companies,” Roche Chief Executive Severin Schwan said after the announcement.

The timing of the deal couldn’t be better for the Switzerland-based Roche, as the deal represents yet another foreign firm looking to snap up prime U.S. assets at a reasonable price.

“This makes a lot of sense,” Beatrice Kunz, a portfolio manager at Zurich-based Clariden Leu who helps manage $147 billion in assets, including shares of Roche. “The weak dollar and the fact that they are not paying a huge premium make this rather attractive.”

But some analysts feel Roche will have to up its offer to entice Genentech shareholders to approve the deal. French bank Societe Generale SA (OTC ADR: SCGLY) speculated in a research note that a higher offer would be needed since Roche did not meet with Genentech management prior to announcing its offer and Genentech stock had traded as high as $100 as recently as 2005, MarketWatch reported.

News and Related Story Links:

• MarketWatch:
  Roche bids $43.7 billion for rest of Genentech

• The International Herald Tribune:
  Roche offers $43.7 billion for remainder of Genentech

• Bloomberg News:
  Roche Aims to Buy Rest of Genentech for $43.7 Billion

• The Financial Times:
  Roche launches $44bn Genentech offer