(Adds portfolio manager comment)
By Deena Beasley
LOS ANGELES Feb 9 Roche Holding AG (ROG.VX) launched an hostile offer on Monday to acquire, directly from stockholders, the 44 percent of biotechnology company Genentech Inc DNA.N it does not already own for $86.50 a share.
Roche said that Genentech banker Goldman Sachs had proposed $112 a share as an acceptable sales price.
Switzerland-based Roche also said it intends to exercise its right to increase the size of Genentech's board -- bringing its number of directors into line with its majority ownership.
Officials at Genentech were not immediately available for comment.
The latest tender replaces Roche's $89-a-share bid for Genentech from last July. That proposal was turned down by independent directors of South San Francisco, California-based Genentech as inadequate.
It is far from certain whether Genentech shareholders will buy Roche's argument that $86.50 is a fair price, reflecting its majority control of this biotechnology success story.
"Based on what I know now -- no. I will not tender my shares," said Matt Loucks, portfolio manager at Sit Investment Associates, when asked about the offer.
He said Roche appears committed to concluding the deal, given that the company's right of first refusal to new Genentech products is set to expire in a just a few years.
"If I were a shareholder, I would take the $86.50, but I think a lot of shareholders want to see the data," said Jefferies & Co analyst Eun Yang, referring to upcoming results from a trial of blockbuster drug Avastin in colon cancer patients who have had their tumors removed through surgery.
Success would greatly expand sales of the cancer drug, sending Genentech shares to $100, while failure would likely push shares to the low $60s, Yang said.
"Many people think Roche will eventually acquire Genentech even if the study fails," she said. "From the perspective of long-term Genentech shareholders, it might make sense to wait."
Roche said in Monday's filing that it thinks the upcoming Avastin colon cancer trial has a 55 percent chance of success, while Genentech has put the odds at 61 percent.
Roche said it believes that "there is a meaningful likelihood that the trial is not sufficient to receive regulatory approval," and further trial results may be required.
The company also said it does not agree with Genentech's assessment of the size of eligible patient populations for Avastin in the post-surgery setting.
Roche said its offer is dependent on the receipt of a majority of the outstanding shares not held by Roche or by Genentech principals, as well as $42.1 billion in financing to conclude the deal.
The funds will come through a combination of bank loans, debt securities and other financing, as well as available cash, the company said.
Roche needs to acquire a total of 90 percent of Genentech shares in order to complete a merger.
If it falls short of that goal, the company said it will review options, which include "doing nothing, purchasing shares in the open market or privately negotiated transactions, making a new tender offer or seeking to negotiate a merger or other business combination with Genentech."
Roche said it remains willing to have discussions with the Genentech special committee about a negotiated transaction.
Shares of Genentech, which closed at $82.70 on the New York Stock Exchange, were not trading after hours.
The tender offer will expire March 12. (Reporting by Deena Beasley; editing by Andre Grenon and Bernard Orr)
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