Roche likely to raise bid for Genentech

By Deena Beasley

LOS ANGELES (Reuters) - Roche Holding (ROG.VX) may need to raise its $43.7 billion (21.9 billion pound) bid for the Genentech DNA.N stock that it does not already own, but an eventual deal is likely, analysts and investors said on Monday.

The Swiss drug maker, which already holds a 56 percent stake in Genentech, has offered $89 a share. That's a premium of about 9 percent to the U.S. biotechnology company's closing share price Friday, but the stock rose as much as 15 percent on Monday.

"I think the market is telling you that they view the offer as an inadequate reflection of Genentech's value," said Jay Markowitz, research analyst at T. Rowe Price Associates, which owns about 16.5 million shares of Genentech.

As precedent, he and others cited Novartis's (NOVN.VX) 2006 acquisition of Chiron. The Swiss buyer, which already held a 42 percent stake in the San Diego-based company, eventually raised its bid after independent directors at Chiron rejected initial overtures as inadequate.

Roche itself sealed its buyout of Ventana Medical Systems earlier this year by raising the initial takeover offer by 19 percent, even after repeatedly saying it would hold firm on the price.

"Clearly people understand that there is head room for them to do more on the (Genentech) transaction," said Deutsche Bank analyst Michael Leuchten during a conference call held by the investment bank. " ... Probably they will have to do more if they are serious about it."

That's because the two companies' 1999 agreement requires minority shareholder approval of any takeover of South San Francisco, California-based Genentech by Roche. If that doesn't happen, two investment banks will be hired to conduct separate valuations, and Roche would have to take or leave the average of those assessments, according to Deutsche Bank.

Roche could still walk away, but the company clearly sees a takeover of Genentech as a better use of cash than buying back shares or paying dividends, Leuchten said.