Genentech rejects Roche but leaves door ajar

13-Aug-2008 - Last updated on 14-Aug-2008 at 08:47 GMT

Genentech’s special advisory committee has rejected Roche’s $44bn offer for the biotech believing that it “substantially undervalues” the company.

The committee is willing to consider a revised offer for the company but clearly feels that Roche will have to bring significantly more money to the table if it wants to acquire the biotech.

An offer is sought that reflects the value that the committee believes the acquisition of Genentech will bring to Roche.

Dr Charles Sanders, chairman of the special committee, said: "The special committee is confident in the company's strong financial and clinical momentum and its uniquely productive R&D capabilities, which will continue to enhance shareholder value.

“In addition, we look forward to the company maintaining its successful relationship with Roche, regardless of ownership structure."

The committee also revealed it had approved a broad-based employee retention programme to reassure Genentech employees who are worried about their futures in the event of the takeover going through.

However, this still leaves the more intangible matter of preserving Genentech’s unique culture, which some employees and commentators fear will not survive under Roche.

What is Genentech worth?

Financial analysts had been speculating that the committee would not support Roche’s current offer prior to publication of its verdict.

This has led to discussion over what represents a fair price for the biotech, with Sanford Bernstein biotech analyst Geoffrey Porges releasing a research note to clients prior to the committees verdict entitled: "Genentech: What would Genentech REALLY Be Worth? And Why $130/Share Is Not As Crazy As It Sounds."

By breaking down Genentech down into the sum of its parts and calculating the value of each Porges reached the conclusion that the biotech is worth $124 a share.

This value takes into account future profits from the drug development pipeline and new applications of drugs already on the market and is considerably more than the $89 a share that Roche initially offered.

Porges wrote in his note that he believed there was an 80 per cent chance of the deal going through at over $105 a share and a 20 per cent chance of it falling through.

Genentech’s shares rose again on news of the committee’s verdict, reaching a high of to $98.50.