TRENDS AND PERSPECTIVES
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Severin Schwan
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However, Ventana clearly does not want Roche as a majority stakeholder, and a battle has ensued. Early in the year, Roche approached Ventana’s board with a takeover plan but was repeatedly rebuffed, Roche says.
So Roche made an unsolicited public bid, offering $75 in cash for each outstanding Ventana share or about $3 billion. Ventana advised its stockholders to reject the offer because it was too low.
When the initial offer expired July 26, Roche had acquired just under 10,000 shares. Ventana has about 34 million shares outstanding. Roche then extended the offer for a month, until August 23, under the same terms. Ventana was no more enthusiastic about the second offer than it was the first.
Also, in June, Roche filed two lawsuits, one in Delaware that seeks to invalidate Ventana’s stockholder-rights plan that would make a takeover of the company harder and more costly. Under the plan, commonly known as a “poison pill,” stockholders would be able to buy stock in the new company at half price. The second suit, filed in federal court in Arizona, challenges the state’s antitakeover law that was enacted in 1987.
Roche has suggested that it will pursue the matter at Ventana’s 2008 annual stockholders meeting if necessary. No one is surprised by Roche’s determination.
“Roche wants to be a leader in personalized medicine, with control over the diagnostics and the therapeutics,” says Bruce Jackson, a healthcare equity research analyst with RBC Capital Markets (Minneapolis.)
Roche is also targeting certain disease states, one of which is cancer, he says. “To be a leader in cancer diagnostics, you need a company that can do tissue-based diagnostics. Ventana is the leading company in that market. Outside of Ventana, there are very few options.”
Ventana is the leading producer of the diagnostic equipment to identify the Her2 protein in women with breast cancer. The drug Herceptin, made by Genentech, that Roche distributes internationally, is effective against Her2.
Jeff Ellis, head of diagnostics M&A for Crosstree Capital Partners (Tampa, FL), says the Swiss pharmaceutical giant has the financial resources to pursue Ventana, and he is not surprised to see it using them.
“Roche has an extremely strong cash position at the moment and has informed the markets that it will be deploying some of this cash on acquisitions,” he says. “They’ve certainly executed on that so far this year.”
Since March, Roche has acquired 454 Life Sciences (Branford, CT) for $140 million, BioVeris (Gaithersburg, MD) for $600 million, and Nimblegen (Madison, WI) for $272.5 million.
Views differ on whether Roche’s $75-a-share offer is reasonable. Ventana CEO Christopher Gleeson told stockholders the offer was too low because it did not reflect “how much our diagnostics would help a company like Roche to speed development of its cancer therapeutics.”
In June, when Roche made its offer, it represented a nearly 45% premium, but the stock shot up on the news of Roche’s interest and has stayed over $80 a share since.
Manfred Scholz, PhD, president of Scholz Consulting Partners (Medford, MA), thinks the initial offer was very generous. Ventana is worth more in Roche’s hands than it is as a stand-alone or if it were acquired by a private equity firm, he says. If Roche does not acquire Ventana, Roche can go out and find a second-tier pathology supplier and build the companion diagnostic market itself, Scholz says.
“Since Roche has a much bigger pool of technology, Ventana couldn’t compete effectively and there aren’t that many companies with deep enough pockets to add that component to Ventana,” he says.
Scholz didn’t see any reason for Roche to raise its offer unless some other suitor comes along, which is always a possibility, he says.
Ventana shareholders “are pushing their luck if they think they would get a major gain” by holding out, he says. Lately, Scholz says, the industry has exhibited a little more rational restraint when it comes to expensive acquisitions.
“GE Healthcare (Chalfont St. Giles, UK) walked away from Abbott Laboratories (Abbott Park, IL) probably related to the cost of the deal. Beckman Coulter (Fullerton, CA) stuck to its guns with Biosite (San Diego) and didn’t raise its offer.”
Scholz expects Roche to be rational about this deal as well. If it were to happen, the deal would be easy to execute, Scholz says. “This is a segment that Roche can buy without antitrust issues. If Roche were trying to buy a molecular business, as a market leader it would have antitrust issues, but here they have no sales presence so I can’t see any antitrust issues.”
Roche’s CEO Severin Schwan has told Ventana employees that if it acquires the company, they can expect few changes. Roche, he said, would operate Ventana as a stand-alone business unit within the Roche Diagnostics division, retaining its headquarters and operations in Tucson.
