Swiss healthcare company Roche Holding AG announced July 21 an offer to buy the remaining stake in U.S.-based biotechnology company Genentech Inc. for US$89.00 per share in cash, or a total of about US$43.7 billion. Roche currently owns a 55.9 percent stake in Genentech. Roche said it expects to close the acquisition as soon as possible following negotiation of a definitive merger agreement.
The offer represents a one day premium of 8.8 percent to Genentech's closing price of US$81.82 on July 18, and a one month premium of 19 percent to Genentech's closing price of US$74.76 on June 20, 2008.
According to Roche, the combination is estimated to generate annual pre-tax cost synergies of approximately US$750 to $850 million. Also, the acquisition is projected to be accretive to Roche's earnings per share in the first year after closing.
Roche, which acquired the majority stake in Genentech in 1990, said it expects the combined entity to generate substantial free cash flow that will enable it to reduce acquisition-related debt rapidly, invest in further product launches and retain strategic flexibility.
Further, the transaction is expected to create significant value for shareholders of both Genentech and Roche, and the savings from the combination will enable the new company to increase and better focus its investment in innovation.
Commenting on the proposal, Franz Humer, chairman of the board of Roche, said, "Roche's significant investment in Genentech over many years has helped it to focus on innovation and long-term projects, leading to some of the most important breakthroughs in the treatment of cancer and other life-threatening diseases. 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 added that the deal will not impact the company's fiscal 2008 sales and core earnings per share guidance. The company also said it remains committed to increasing its dividend pay-out ratio for the next three years as previously announced.
Following the combination, the new entity is expected to be the seventh-largest U.S. pharmaceuticals company in terms of market share, and will generate more than US$15 billion in annual revenues. There will be around 17,500 pharma employees in the U.S. alone, and Roche Group will employ around 25,000 people in the U.S. including diagnostics.
Genentech will operate as an independent research and early development center within Roche, and Genentech's existing campus in South San Francisco will become headquarters of combined U.S. commercial operations. Roche's Palo Alto Virology research and development activities will relocate to South San Francisco, while its Palo Alto Inflammation group will become part of Roche's Nutley, New Jersey research and development organization. Roche's manufacturing in Nutley will be closed, and it will consolidate its support functions, such as informatics and finance.
Roche also said its Pharma commercial operations in the U.S. will be moved from Nutley to Genentech's site in South San Francisco. The companies will maintain its current U.S. sales organizations, resulting in a very strong presence in several specialty areas.
Severin Schwan, CEO of Roche, said, "As Genentech has grown from a research-focused biotech venture into an integrated pharmaceutical organization, the transaction will also unlock synergies by leveraging the scale of the combined operations in the U.S. and improving operational efficiency."
