Genentech mulls Roche offer as stock surges

But some analysts said Roche, already Genentech's majority shareholder, has leverage to keep the price for the maker of the blockbuster cancer therapy Avastin and other cancer treatments from spiraling much higher.

Genentech's stock price climbed well above Roche's offer of $89 per share in Monday trading--a bet that the independent directors weighing the Basel-based company's bid will demand more money.

Shares jumped $12.06, or nearly 15 percent, to close at $93.88 after rising to a 52-week high of $94.19 earlier in the session.

Many Wall Street analysts said that Roche's offer did not reflect the profit potential of Avastin or the South San Francisco company's other popular drugs. Roche already owns about 55.9 percent of Genentech.

"We believe Roche is attempting to capture Genentech's significant future growth on the cheap," said Oppenheimer & Co. analyst Bret Holley in a note to investors. Some analysts predicted Roche's offer would have to climb to more than $100 per share to be acceptable to Genentech, and one pegged the stock's value at $120.

Still, an agreement outlined in Securities and Exchange Commission filings for Genentech's 1999 public offering of stock indicates Roche has clout that could help it negotiate a final bid closer to its initial offer.

Under the agreement, a majority of non-Roche shareholders must approve any sale or merger of Genentech with Roche. If shareholders reject the bid, according to the agreement, Roche can hire investment banks to set the price for Genentech's remaining shares.

Rather than gamble on banks setting an even lower price than Roche has already offered, Genentech's board members would likely negotiate an agreement within a few dollars of the $89-per-share bid, said Eric Schmidt, a biotech equities analyst for Cowen and Company.

"That changes to whole dynamic of the negotiation and lowers by a significant amount the premium that's going to have to be paid," said Schmidt, who predicted in a note to investors that Roche's status as majority shareholder would allow it to fend off any competing offers from other bidders.