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Roche eyes Genentech in new bid

12th January 2009

Swiss-based pharmaceutical giant Roche is planning a fresh takeover bid for US biotech firm Genentech, of which it already owns 56%.

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The bid is likely to be put to Genentech's board of directors when they meet in early February, and is likely to be made at around US$95 a share.

The US$35 billion deal, analysts say, could be a sign that corporate financial markets are returning to some semblance of normality.

It will be the biggest merger or acquisition deal on the market since last June.

Roche is so keen to make the bid work that it expects to spnd US$44 billion on the takeover if it is well-received, and up to US$50 billion if it is forced to make a hostile bid, and has said it would scrap its year-own dividend to shareholders to pay for it.

Roche already has US$9 billion in the bank and US$3.4 billion in Genentech shares. The company will be looking to raise between US$30 billion and US$35 billion on debt markets.

A US$10 billion revolving credit facility is set to be re-signed, while a longer term facility for up to US$25 billion has been agreed on a preliminary basis with a syndicate of 10 banks, led by HSBC and JPMorgan.

A flurry of corporate bond issues in recent days have resulted in around US$30 billion of money market activity, boosting sentiment among those financing the deal.

Genentech is currently awaiting the results of a trial of a new drug to treat colorectal cancer, Avastin, expected in the summer, and Roche wants to take control of the company before this happens.

If the results are positive, Avastin will be approved for broader uses, boosting the value of Genentech's shares.

Last July, the Swiss company tried to buy out minority shareholders at US$89 a share, but the bid was rejected by independent directors, who rejected its terms. Roche is prepared to be more aggressive this time round.

Genentech's entrepreneurial founder, Arthur Levinson, and his band of independently minded scientists, would be crucial supporters of any bid.

The global credit crunch has kept Roche's plans on ice in recent months, with plans for a surprise bid in New York rejected.

Greenhill is acting as Roche's adviser on the bid, while Goldman Sachs is advising Genentech. Roche has declined to comment.

 

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