Roche Says It'll Still Buy Genentech, Investors Think Otherwise

Yesterday morning, the mining company BHP Billiton (BHP) threw in the towel on its year-and-a-half long hostile attempt to buy its rival Rio Tinto (RTP). The company cited the global economy and commodity prices for the pullout.

On the heels of that announcement, a reporter from Reuters apparently tried to move the story forward by reaching out to drugmaker Roche (RHHBY.PK) to see if it might follow suit. After all, it's the other proposed big corporate M&A deal that's still hanging in the balance.

Through a spokesman, the company said it's still committed to what it had called a "negotiated settlement" for the rest of California biotech Genentech (DNA) that it doesn't already own.

Roche originally offered $89 a share. Genentech said that was too low. Since then both sides have been playing their hands very close to the vest. The dollar has gone up and the Swiss franc has gone down, so the value of the deal is already higher even if Roche didn't up the ante.

So, based on Roche's reaffirmation of its intentions you'd think shares of Genentech would go up. But you'd be wrong. Today DNA closed down 41 cents or half a percent. It is now trading $12.75 below Roche's original offer. Clearly, investors remain unconvinced that Roche can pull this off.

In a recent interview, though, CNBC contributor and former Genentech Chief Operating Officer Myrtle Potter said Roche not only has good credit, but is also well-liked by the Swiss banks in the drugmaker's homeland. She thought the deal would eventually get done.

Roche waited months to do a similar, but much smaller takeover of Ventana Medical Systems, so it has shown it can be very patient. And today Roche paid lunch money for teeny tiny Memory Pharmaceuticals. It's buying MEMY for $50 million. The stock jumped 312 percent from 15 cents to 60 cents. Roche will have no trouble closing a $50 million acquisition. In the current credit environment, pulling off a $50 billion-plus deal is another matter.

Comments

[jepittman:]

Comparing commodity producer Rio with Genentech's drug portfolio is a bit of a stretch in my view. Roche is extremely creditworthy and they are the kind of people who tend to follow through with their plans. If I were betting (which by the way I am not), I would bet on Roche.

2008 Nov 26 01:44 PM