Roche, a world-leading healthcare company, announced that it has proposed to acquire the outstanding publicly held interest in Genentech, a leading biotechnology company, for US$89.00 per share in cash, or a total payment of approximately US$43.7 billion to equity holders of Genentech other than Roche. Roche acquired a majority in Genentech in 1990 and currently owns 55.9 per cent of all outstanding shares.
Commenting on the proposal, Franz Humer, chairman of the board of Roche, said, "Our long and successful participation in Genentech has provided great benefits to both of our companies and shareholders. It has resulted in one of the biggest success stories in the healthcare industry. Roche's significant investment in Genentech over many years has helped it to focus on innovation and long-term projects, leading to some of the most important breakthroughs in the treatment of cancer and other life-threatening diseases. The transaction will create a unique opportunity to evolve Roche's hub-and-spoke model into a structure that allows us to strengthen the focus on innovation and accelerate the search for new solutions for unmet medical needs. Combining the strengths of Roche and Genentech will create significant value and result in benefits for patients, employees and shareholders."
Severin Schwan, CEO of Roche, said, "We are looking forward to working more closely with our colleagues from Genentech. We have great respect for their achievements and we will take the necessary steps to nurture Genentech's innovative and unique science-driven culture. The Genentech Founders Research Center will operate as an independent unit within the Roche Group to safeguard a diversity of different approaches and to foster the long term flow of novel breakthrough medicines. At the same time, we will be better able to share technologies and expertise in pharmaceuticals and diagnostics across the Group and broaden the mutual access to the external innovation networks of both companies. As Genentech has grown from a research-focused biotech venture into an integrated pharmaceutical organization, the transaction will also unlock synergies by leveraging the scale of the combined operations in the US and improving operational efficiency."
Genentech will operate as an independent research and early development centre within Roche from its existing campus in South San Francisco, retaining its talent and approach to discovering and progressing new molecules. Roche's Palo Alto Virology research and development activities will relocate to South San Francisco, while its Palo Alto Inflammation group will become part of Roche's Nutley, NJ research and development organization. Nutley will host two global Disease Biology Areas (Oncology and Inflammation) as well as key functions in Metabolism and will remain an important pillar for the US and Roche's global organization. With Genentech's site in South San Francisco and Roche's New Jersey-based campus, the US will be home to the biggest research and development centres within the Roche Group.
The structure of the combined company will allow for a diversity of approaches in research and early development, while also strengthening cross fertilization between the companies, leading to enhanced overall innovation within the Group. Roche's recently adopted Disease Biology Area approach, which allows five diverse groups to manage their innovative portfolios, will be maintained and strengthened. This, together with recent moves into RNAi (Ribonucleic Acid interference) and delivery technologies, as well as licensing activities, continues to provide a stimulating environment for the creation of medically differentiated medicines.
Roche's Pharma commercial operations in the US will be moved from Nutley to Genentech's site in South San Francisco. The combined company's US commercial operations in pharmaceuticals will reflect the Genentech name, leveraging the strong brand value of Genentech in the US market. The existing US sales organizations of both companies will be maintained, resulting in a very strong presence in several specialty areas.
Genentech's Late Stage Development and Manufacturing operations will be combined with the global operations of Roche, achieving substantial scale benefits, operational synergies and cost avoidance. Roche's manufacturing in Nutley will be closed and support functions, such as informatics and finance, will be consolidated.
The transaction will over time significantly enhance cooperation and cross fertilization among all research hubs inside and outside of the combined company. Sharing of technologies (e.g. RNAi, novel protein architectures), assets (e.g. chemical libraries), intellectual property (e.g. antibody production), unique capabilities (e.g. exploratory development, modelling and simulation) and know-how of the combined research organization will strengthen the Group's ability to innovate. Genentech and Roche have many complementary strengths and assets and joining their respective experience and knowledge will be mutually beneficial. The separate research and early development unit in South San Francisco led by Genentech will be given the operational freedom to maintain a high level of creativity and independent decision making. Genentech will also have access to the full strength of Roche's worldwide development organization, thus significantly enhancing its ability to leverage international clinical trials and expertise. The combined company will have one of the strongest emerging product pipelines in the industry, with a number of exciting compounds in development across key therapeutic areas.
By reducing complexity and eliminating duplicative functions in areas like development, manufacturing, corporate administration and support functions, the combination will result in well-aligned structures and lean processes. Bringing these functions into the Roche global structures will reduce complexity at Genentech's South San Francisco site, concentrating Genentech's focus on innovative research and early development and science.
The combined entity will be the seventh largest US pharmaceuticals company in terms of market share. It will generate more than US$15 billion in annual revenues and will employ around 17,500 pharma employees in the US alone, including a combined sales force of approximately 3,000 people. Including diagnostics, the Roche Group will employ around 25,000 people in the US The company's combined broad portfolio and expansive commercial operations will enhance its ability to successfully commercialize emerging new medicines in the critical, but challenging and rapidly evolving, US healthcare market.
The transaction will create significant value for shareholders of both Genentech and Roche. The offer represents a one day premium of 8.8% to Genentech's closing price of US$81.82 on July 18, 2008 and a one month premium of 19.0% to Genentech's closing price of US$74.76 on June 20, 2008.
Roche expects the combination to generate annual pre-tax cost synergies of approximately US$750 to $850 million. Savings resulting from this combination will enable the new company to increase and better focus its investment in innovation.
The transaction is expected to be accretive to Roche's earnings per share in the first year after closing. The combined company will generate substantial free cash flow that will enable it to reduce acquisition-related debt rapidly, invest in further product launches and retain strategic flexibility.