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Roche proposes to buy outstanding company shares in Genentech
Genentech shareholders have filed a lawsuit opposing the buyout offer.
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A Genentech committee of independent directors is reviewing a proposal by Roche to purchase the remaining shares in Genentech, amid opposition from shareholders.
“We believe our offer is fair and generous, and our goal is to reach a mutually acceptable agreement with the independent directors,” Nina Devlin, a spokeswoman for Roche, told Ocular Surgery News. “Nevertheless, no assurance can be given as to the outcome of the negotiations with the independent directors.”
Roche, a Swiss pharmaceutical company, owns 55.9% of Genentech stock and is seeking to purchase the remainder for $89 in cash per share for a total of $43.7 billion. Roche acquired half of Genentech’s stocks in 1990.
At press time, no decision had been reached regarding Roche’s offer. The Genentech independent directors were reviewing and considering the proposal, according to Megan Pace, a spokeswoman for Genentech.
“The special committee intends to proceed in a timely manner to review the Roche proposal,” she said.
Roche has previously bought out Genentech stock. In 1999, the company acted on an option of the 1990 deal that allowed it to purchase the remaining Genentech shares. Shortly thereafter, Roche took Genentech public again by floating more than 40% of the stock in a public offering.
The current acquisition would render Genentech a private company.
Roche’s offer has sparked litigation from shareholders, who filed a claim in the Court of Chancery in Delaware.
Possible results of buyout
If Roche’s buyout proposal is accepted, Roche’s pharmaceutical operations would move from Nutley, N.J., to Genentech’s headquarters in South San Francisco, Calif., according to a Roche press release. Roche’s Palo Alto virology research and development activities would relocate to South San Francisco as well, and the Palo Alto inflammation group would merge with the Nutley research and development organization.
With those changes, the largest research and development centers in the Roche Group would be located in the United States, the release said. The company would also become the seventh largest pharmaceutical company in market shares in the United States.
According to the press release, Genentech would continue operating as an independent research and early development center within Roche, maintaining its investigation into molecules and retaining its talent.
“The Genentech Founders Research Center will operate as an independent unit within the Roche Group to safeguard a diversity of different approaches and to foster the long-term flow of novel breakthrough medicines,” Severin Schwan, chief executive officer of Roche, said in the release. “At the same time, we will be better able to share technologies and expertise in pharmaceuticals and diagnostics across the group.”
Genentech’s biotechnology products 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.
According to Roche, the proposal was made for numerous reasons, including the financial benefits for shareholders of both companies; combining the two companies would generate annual pre-tax cost synergies of approximately $750 million to $850 million.
In addition, the combined companies would have a substantial free cash flow, resulting in reduced debt potential, increased investment in other product launches and continued strategic flexibility, the press release said.
Shareholder response
Roche made the proposal to Genentech on July 21. Soon after, a lawsuit was filed by Ira J. Gaines on behalf of himself and other Genentech shareholders against both Roche and Genentech, alleging breach of fiduciary duty and aiding and abetting breach of fiduciary duty concerning Roche’s offer to buy out the remaining Genentech shares.
The lawsuit says that Roche’s proposal is too low, with unfair and inadequate terms, and that it was introduced now to take advantage of “general market turmoil” and the weakened U.S. dollar.
“The case was filed in order to attempt to enjoin the transaction at the current price,” Lynda J. Grant, JD, a partner at Cohen, Milstein, Hausfeld & Toll, the firm leading the shareholder lawsuit, said in a statement to OSN. “[The] plaintiffs want to gain a higher purchase price and greater consideration for the Genentech shareholders, and that any resulting transaction be the product of a fair process, untainted by Roche’s interest and control.”
Genentech officials said in a press release that the company is not obligated under the affiliation agreement between the two companies or for any other reason to accept the offer, even though Roche owns the majority of the company’s stocks.
Despite Genentech’s assurance that Roche will not play a role in its decision to either accept or reject the buyout offer, the lawsuit filed on behalf of Genentech shareholders claims that because of Roche’s holdings and majority ownership of Genentech, “all of Genentech’s directors are beholden to Roche.”
Ms. Grant said that Genentech shareholders have a right to receive the highest price possible for their shares of the company.
“As our complaint indicates, we allege and believe that Roche’s proposal is opportunistic and timed to take advantage of a low in Genentech’s price. We also believe that Roche wants the opportunity to avoid certain profit-sharing agreements that it has with Genentech for certain Genentech products,” she said.
Ms. Devlin and Ms. Pace told OSN that lawsuits sometimes occur in such situations and that the actions of both companies have been in full accordance with the law.
“We think these issues should be resolved fairly and justly,” Ms. Pace said. “Beyond this, we aren’t commenting on pending litigation.”
Special committee
Genentech has appointed a committee of its independent board of directors, who will be advised by outside financial and legal advisers, to review Roche’s proposal and decide whether to accept the company’s offer.
The committee is composed of three Genentech board members: Herbert W. Boyer, PhD, Debra L. Reed and Charles A. Sanders, MD, according to a company press release. Roche will not have any role in the special committee.
Genentech’s board has said it will not make a decision on the offer until receiving a recommendation by the special committee.
“The precise terms of the transaction, as well as the conditions to its consummation, will be determined through negotiations with the independent directors,” Ms. Devlin said. “We expect to complete the transaction as soon as possible following negotiation of a definitive merger agreement and approval by Genentech’s shareholders.”
For more information:
- Nina Devlin is a spokeswoman for Roche. She can be reached at the Brunswick Group, 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; 650-225-1000; fax: 650-225-6000; Web site: www.gene.com.
- Lynda J. Grant, JD, is a securities fraud/investor protection partner with Cohen, Milstein, Hausfeld & Toll. She can be reached at 150 E. 52nd St., 30th Floor, New York, NY 10022; 212-838-0177; e-mail: lgrant@cmht.com.
- Erin L. Boyle is an OSN Staff Writer who covers all aspects of ophthalmology.