Genentech bid lacks support; Wyeth buyout includes hefty breakup fees; Exelon moves for NRG control

By Cristal Cody

New York, Jan. 30 - Roche Holding AG fired back on Friday with a lower bid aimed directly at Genentech Inc. shareholders, but the market and analysts aren't buying it.

The Swiss drug maker now said it will offer $86.50 a share in cash - $2.50 less than its first offer rejected by Genentech in August - for the 44% of shares it does not already hold.

In other pharmaceutical deals, Pfizer Inc.'s acquisition of Wyeth includes a $4.5 billion termination fee for Pfizer and a fee of $1.5 billion to $2 billion for Wyeth, according to a regulatory filing. As part of the deal, Pfizer also is required to reduce its quarterly dividend to 16 cents a share from 32 cents.

On the hostile front, Exelon Corp. continued to press its $6.5 billion takeover of NRG Energy, Inc. on Friday with a slate of proposed nominees to NRG's board of directors.

Moving to Wall Street, stocks continued a two-day slide on Friday.

The Dow Jones Industrial Average fell 148.15 points, or 1.82%, to 8,000.86. The S&P 500 index shed 19.26 points, or 2.28%, to finish at 825.88, and the Nasdaq Composite index fell 31.42 points, or 2.08%, to 1,476.42.

Roche underbids for Genentech

Analysts had expected California-based Genentech to fetch $95.00 and up a share, especially once clinical data on its cancer drug is released in April.

The surprise lower bid of $42 billion caught the market by surprise.

"I'm scratching my head to figure it out," Jason Zhang, an analyst with BMO Capital Markets, said Friday. "In the beginning, we actually thought the value would be more than $100.00 a share. We still think on a fundamental basis, that's right. If you consider the market conditions, something in the middle $90.00s would be really enticing to shareholders."

Roche's new offer is a 3% premium over Genentech's closing price of $84.09 on Thursday and a 6% premium over the company's stock price before the first offer was made in July.

Genentech shares fell $2.85, or 3.39%, to close Friday at $81.24.

Roche said it expects to start the tender offer within two weeks.

"Especially in the current market environment the offer provides an opportunity for all public shareholders to achieve liquidity and to receive a fair price for all their shares," Franz B. Humer, chairman of Roche Group, said in a statement.

The deal will be financed with Roche's funds, commercial paper, bonds and bank financing.

The special committee of Genentech's board of directors urged shareholders to take no action.

"Notwithstanding current market conditions, the special committee continues to believe that $89.00 substantially undervalues the company," Charles Sanders, chairman of the special committee of Genentech's board, said in a statement. "The special committee is disappointed that Roche has taken this unilateral and opportunistic step in an attempt to take advantage of current market conditions."

Zhang said the offer is not likely to produce much action.

"We're particularly seeing that the long-term shareholder, which certainly makes up a large portion of Genentech holders, are not going to play along," he said. "The chance of the deal going through at this level is very low. We think the deal will have to be done at a much higher price."

Mega breakup fees in Pfizer, Wyeth combo

If Pfizer's $68 billion buyout of Wyeth does not close because Pfizer cannot obtain the financing, the company must pay a $4.5 billion termination fee, according to the filing late Thursday with the Securities and Exchange Commission.

Pfizer made the offer on Monday, which includes $33.00 a share in cash plus 0.985 of a share of Pfizer stock.

Shares of Wyeth have fallen steadily since the offer was made.

Wyeth's stock lost 65 cents, or 1.49%, to close at $42.97 on Friday.

Pfizer shares fell 54 cents, or 3.57%, to close at $14.58.

Exelon probable NRG owner

Exelon's proposal would increase the number of directors on NRG's board to 19 from 12.

"Exelon is confident that with an expanded and reconstituted NRG board, a majority of NRG directors will exercise their fiduciary duty and vote for the clear path to shareholder value," John W. Rowe, Exelon chairman and CEO, said in a statement.

Exelon said on Jan. 7 that more than 45.6% of shares had been tendered in the offer of 0.485 of a share of Exelon stock for each share of NRG stock. The exchange offer expires on Feb. 25.

"By Feb. 25, my guess is Exelon will get the 50% and that will negate the need for them to go into proxy battle," an analyst who follows NRG Energy said Friday.

"At that point, the board is unlikely to get in the way of them finishing this transaction. They would be vulnerable to a lawsuit and accused of not doing their fiduciary duty."

NRG Energy said in a statement Friday that the company "believes Exelon's actions to initiate a proxy fight are a clear attempt to compromise the independence of NRG's board in order to force a sale of NRG to Exelon at a price that is highly dilutive to NRG stockholders on a free cash flow basis."

Exelon brought the offer to stockholders in November after the company's board twice rejected it.

Exelon shares lost $2.16, or 3.83%, to close at $54.22.

Shares of NRG fell 19 cents, or 0.81%, in trading to close at $23.36.

Mentioned in this article:

Exelon Corp. NYSE: EXC

Genentech Inc. NYSE: DNA

NRG Energy, Inc. NYSE: NRG

Pfizer Inc. NYSE: PFE

Roche Holding AG Swiss: RO

Wyeth NYSE: WYE

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