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Genentech adopts plan to retain employees after rejecting offer
The retention plan includes a severance pay option in case employees lose their jobs if a future Roche buyout proposal is accepted.
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After rejecting a buyout proposal from Roche, Genentech officials have established a financial incentive plan to retain employees.
The retention plan, according to a U.S. Securities and Exchange Commission filing, was approved by a Genentech-appointed special committee that was created to appraise Roche’s proposal. It establishes retention bonuses for all employees who remain at the company for a stated period of time.
“The program is meant to help provide continuity and stability by addressing any employee concerns created by the Roche proposal,” Caroline Pecquet, a spokeswoman for Genentech, said in a telephone interview with Ocular Surgery News.
The filing came shortly after Genentech rejected Roche’s $43.7 billion bid to buy out the remaining 44% of Genentech shares that Roche does not own. Genentech officials said that while the company did not approve Roche’s offer, it could respond favorably to a more financially beneficial proposal.
“In light of the tremendous importance of Genentech’s employees to the company’s success, the special committee has approved the implementation of a broad-based employee retention program,” according to a press release from the company.
“We have great respect for the Genentech employees and support these efforts by Genentech to ensure talent is retained during this time,” Nina Devlin, a spokeswoman for Roche, told OSN.
Biotechnology products that Genentech manufactures include Lucentis (ranibizumab), a VEGF inhibitor used to treat neovascular wet age-related macular degeneration, and Avastin (bevacizumab), an anti-VEGF antibody approved to treat several forms of cancer that is used off-label to treat AMD and diabetic retinopathy.
Retention plan
According to the SEC filing, instead of a planned 2008 stock option grant program, Genentech will implement a $371 million retention bonus plan for employees who remain with the company.
Genentech will pay the retention bonuses to employees in June, 2009, if Roche has not bought out the company before then. If the Roche buyout happens on or before that date, employees will still receive retention bonuses, but the payment installments will be based on the vesting of stock options, the filing said.
“This retention program is based on comprehensive market-analysis comparison. It was developed with the advisement of experienced outside advisers,” Ms. Pecquet said.
The filing also lists possible retention bonuses for Genentech executives. Those amounts included $8.7 million for Arthur D. Levinson, chief executive officer; $2.7 million for David A. Ebersman, executive vice president and chief financial officer; and $4.6 million for Susan D. Desmond-Hellmann, president of product development. Exact amounts for employees other than executives were not provided, but the filing said that bonus amounts will be established based on an employee’s job level.
In addition to the retention plan, the program also has a severance plan with numerous benefits to protect any Genentech employees who might be terminated from their jobs “without cause” or resign for “good reason” if the buyout occurred. The filing lists proper reasons for termination and said that resigning for good reason could be because of a 15% reduction in cash compensation or a commute of more than 50 miles after a buyout.
Buyout proposal
The retention plan came soon after Genentech rejected Roche’s buyout proposal. Roche, a Swiss pharmaceutical company, owns about 55.9% of Genentech stock and was seeking to buy out the remaining shares in the company at $89 in cash per share.
After reviewing the Roche proposal, the Genentech special committee announced on Aug. 13 that it had unanimously decided not to approve the proposal because it substantially undervalued Genentech’s market value.
However, the committee did not discourage the possibility that it might accept another proposal. Any future Roche proposal must have a buyout offer that reflects the company’s market value and benefit to Roche, according to a press release from Genentech.
Special committee chairman Charles A. Sanders, MD, said in the release that the company will continue to thrive and maintain a strong relationship with majority owner Roche.
Ms. Devlin said Roche had no comments about the future of its proposal.
Roche acquired half of Genentech’s stock in 1990 when it invested in the majority of the biotechnology company. In 1999, the company acted on an option that allowed it to purchase the remaining Genentech shares at $10 per share.
Shortly thereafter, Roche took Genentech public again by offering stock at $12 per share, selling 40%, according to officials.
Genentech officials said in a press release earlier this summer that the company is not obligated under the affiliation agreement between the two companies or for any other reason to accept the offer.
According to information provided by Roche, the proposal was made for several reasons, including for the financial benefits to shareholders of both companies. Roche officials said that combining the two companies would generate annual pre-tax cost synergies of approximately $750 million to $850 million.
For more information:
- Nina Devlin can be reached at Brunswick Group LLC, 140 E. 45th St., 30th Floor, New York, NY 10017; 212-333-3810; fax: 212-333-381; e-mail: ndevlin@brunswickgroup.com.
- Genentech officials can be reached at 1 DNA Way, South San Francisco, CA 94080-4990; 650-467-6700; fax: 650-225-6000; Web site: www.gene.com.
- Erin L. Boyle is an OSN Staff Writer who covers all aspects of ophthalmology.