Roche offers to buy out Genentech for $43.7 billion

By Sam Cage

BASEL, Switzerland (Reuters) - Swiss drugmaker Roche Holding AG (ROG.VX) offered to acquire all outstanding shares in its U.S. partner Genentech Inc DNA.N for $43.7 billion in cash to reinforce its position in cancer medicines.

Roche, which already owns 55.9 percent of Genentech, said on Monday it would offer $89 per share to buy up the remaining stake, but markets bet on an offer higher than the current 8.8 percent premium to the previous closing share price.

Shares in Genentech, the world's largest biotech company by market value, jumped 13.5 percent to $92.90 by 2 p.m. GMT (10 a.m. EDT), while Roche's stock fell 4.8 percent to 170.90 francs as investors worried about the cost of the move, its largest ever acquisition, and the possibility of having to pay more.

"We would expect Roche will have to make a significantly higher offer if it is to acquire Genentech," analysts at Cazenove said in a note.

The modest premium offered by Roche compares with an average of 63 percent for recent pharmaceutical buys of biotech companies, according to Credit Suisse.

Basel-based Roche also said its first-half net profit fell 2 percent to 5.73 billion Swiss francs ($5.62 billion), hit by a loss of sales of influenza drug Tamiflu and the weak U.S. dollar, but beating forecasts.

"The takeover of the innovative oncology powerhouse could really pay off for the Basel company in the mid-term. The timing looks opportune given the current low U.S. dollar," Wegelin analysts said in a note.

Roche's last major U.S. acquisition, snapping up Ventana Medical Systems Inc earlier this year, was only secured with a sweetened offer worth 19 percent more than its initial bid.

It is essential for Roche "to have a stronger and more effective market presence, if we are to not only maintain but extend out position in the face of growing challenges and pressure on prices," Roche Chairman Franz Humer told a news briefing.

Genentech said it expected that a special committee of its independent directors to determine what action to take with respect to the Roche proposal.

CASH PILE

The Genentech bid is the latest in a string of acquisitions of promising biotech assets as large pharmaceutical companies snap up new drugs to fill sparse new product pipelines.

It is the third major deal for biotech assets in the last month alone, after Novartis AG's (NOVN.VX) buyout of research partner Speedel (SPPN.S) and GlaxoSmithKline Plc's (GSK.L) insomnia licensing deal with Actelion (ATLN.VX).

Roche would gain control of all revenues for big-selling Genentech cancer drugs Avastin and Herceptin, as well as absorbing an attractive portfolio of new medicines.

Roche expects the combination to generate annual pretax cost synergy benefits of about $750-$850 million and to add to earnings per share in the first year after closing.