Roche Buyout: For Genentech (DNA), A Game Well Played

Before Roche decided to try to buy the 44% of biotech company Genentech (DNA) that it did not already own the smaller firm traded at $75. Roche offered just over $86 a share. Genentech said “no.”

After months of bargaining, Genentech got a price of $95, a 26% premium over where it traded before the first offer was made. What is more extraordinary is that, while the bickering over price went on, the DJIA dropped 40%. A big premium became, by comparison to the markets, a huge one.

So, the Genetech board hung on to get a better deal and Roche  gave in and will write a check for $47 billion.

Genentech played a good game. The firm always knew that Roche desperately needed to buy it. Genentech has a number of very valuable drugs, and they are biotech products which are hard to re-engineer. Roche, like most other Big Pharma operators, has products which will lose patent protection soon. Generic drug companies will step in and offer must less expensive versions of those treatments.

Big Pharma is dying. Biotech has become the future of the industry. Last year, Genentech made $5.3 billion of profit on $13.4 billion in sales. It has more than $9 billion in cash and long-term investments and adds to that pile each quarter. That speak volumes.

Douglas A. McIntyre