ROCE BAY 
By 
By Sam Cage
Roche is now making a public tender offer at $86.50 per share in cash for the 44 percent of Genentech it does not already own, valuing the deal at $42 billion and replacing its initial $44 billion bid.
The move comes just days after the world's biggest drugmaker, Pfizer Inc
"We are confident that we will have the financing available when the money is needed," Roche Chairman Franz Humer told reporters.
Genentech said a special committee of its board would make a formal response within 10 business days of starting the tender offer and urged shareholders to take no action at this time. But it signaled another rejection in the offing.
"Notwithstanding current market conditions, the special committee continues to believe that $89 substantially undervalues the company," committee chairman Dr Charles Sanders said in a statement, using the initial offer price.
Buying Genentech would give Roche control of all revenue for blockbuster cancer drugs Avastin and Herceptin, as well as an attractive portfolio of other medicines, and reflects the pharmaceutical industry's push to acquire biotech assets to fill sparse new-product pipelines.
Genentech currently gets U.S. revenue from its medicines, while Roche sells the drugs outside the United States.
Roche appeared to be turning up the pressure on Genentech, which analysts said could be trying to delay the process until anxiously awaited clinical data on Avastin due in April becomes available. Positive data that could significantly expand Avastin use would likely drive up the company's value.
Roche's stock rose 1.9 percent to 163.40 Swiss francs. Genentech shares closed down 3.4 percent at $81.24.
Some Genentech shareholders have already indicated plans to reject the Roche offer.
"We are not going to tender our shares," said Sam Isaly, a portfolio manager for OrbiMed Advisors, which holds about 3 million Genentech shares.
While the Avastin data for use in colon cancer patients following surgery remains a question mark, Isaly said, "We're willing to take that risk and we think the shares are worth far more than the current share price."
Analysts and shareholders have said positive Avastin data could easily push Genentech shares well above $90.
"The majority of the minority shareholders are probably similar to us," said Sven Borho, another OrbiMed portfolio manager.
Roche, which currently owns 56 percent of the Genentech outstanding shares and originally bid $89 per share, pitched its new offer at a premium of nearly 3 percent over Genentech's Thursday closing price of $84.09. That is 6 percent above Genentech's price before the initial offer was announced last year, compared with 29 percent for Pfizer's Wyeth deal.
Roche had initially aimed to acquire the remaining shares through a negotiated settlement but decided to appeal directly to shareholders after further talks failed to reach an agreement, Humer said.
"The plan is to use as financing partly our own funds, and then obviously bonds and then commercial paper and traditional bank financing. We will start by going to the bond market first," he said.
Roche said it will seek a merger with Genentech if at the end of the offer it owns 90 percent or more of the shares. It did not give details of the possible length of its tender.
Andy Smith, a fund manager at Axa Framlington Biotech who holds Genentech shares, was not interested in accepting the new offer and said he would consider buying more Genentech stock as long as it remained below the offer price.
"We are in Genentech for the longer term, for the growth prospects, and Roche is too," said Smith, whose fund owns 2.4 million pounds ($3.43 million) worth of the stock.
Geoff Meacham, an analyst at JP Morgan, was anticipating shareholder rejection, saying the acquisition could ultimately be concluded at more than $100 per share.
But Leerink Swann's Bill Tanner believes Genentech shareholders should sell, calling the stock "fundamentally overvalued," especially given the possibility that Avastin data could disappoint.
Roche made a fresh round of calls to banks after news of the Pfizer-Wyeth deal emerged, bankers close to the Genentech deal told Reuters this week.
Business leaders meeting in Davos, meanwhile, said they saw opportunities in the global downturn, though a hard-nosed focus on cost cutting is the order of the day.
After the initial Roche offer in July 2008, Genentech shares rose to a high of $99.05, but later fell back below the offer price as the credit crisis bit, which gave Roche leeway to lower its bid.
Greenhill & Co is financial adviser to Roche and Davis Polk & Wardell is legal counsel for the tender offer, which Roche expects to commence within approximately two weeks.
The Genentech special committee is represented by Goldman, Sachs & Co and Latham & Watkins LLP. Genentech is represented by Wilson Sonsini Goodrich & Rosati.
($1=.7645 Euro)
($1=.6989 Pound)
(Additional reporting by Bill Berkrot, Katie Reid, Sven Egenter and Paul Arnold; Editing by David Cowell, Matthew Lewis and Bernard Orr)
