The board of Genentech (DNA) turned down an $86.50 offer by Roche to buy the part of the company that it does not already own.
Until about a month ago, the offer had been higher–$89.
The board is making a huge mistake and it is likely to cost shareholders a bundle. After the first offer was made last July, DNA shares moved above $90. They stayed there through the summer. As doubts emerged about the Roche offer, the stock moved back down to $85, which is where it trades today.
What the Genentech board is avoiding is the fact that its stock has not been consistently above $90 since 2005.
Genentech asked Roche for $112 a share. It is not dealing from a position of strength. There are not likely to be other buyers during an economic downturn.
When Genentech announced earnings for its last quarter and issued its 2009 forecast, both were below Wall St. expectations. If it walks way from the Roche deal, its shares will drop back to where they were when the whole matter started–$75.
Douglas A. McIntyre