Diagnostics & Imaging Week

After months of sometimes tense negotiating, Roche (Basel, Switzerland) has finally sweetened its offer for Ventana Medical Systems (Tucson, Arizona) to $89.50 a share in cash, and the companies appear a step closer to completing their oftentimes less than graceful pas de deux that began back in June. The companies value the deal at $3.4 billion.

Ventana, which felt the original unsolicited $75-a-share offer did not reflect its true value, said both boards have approved a merger agreement at the improved offer price and that its board recommends shareholders tender their shares to Roche.

The amended offer will expire at 7 p.m., EST, Feb. 7.

Just last week Ventana rejected Roche’s fifth unsolicited tender offer to acquire shares of Ventana for $75 a share in cash. Christopher Gleeson, president/CEO of Ventana called that an “inadequate price,” but said that discussions with Roche were “progressing.”

The companies entered a confidentiality agreement, allowing Roche to begin due diligence and have access to non-public information about Ventana, in November.

Ventana shareholders had been aggressively cool to Roche’s $75-a-share offer, first disclosed at the end of June, after months of what Roche said were fruitless private advances.

The new offer represents a premium of 4.9% to Ventana’s closing price on Friday, a 19.3% premium to Roche’s initial offer on June 27, and a 72.3% premium to Ventana’s closing price on June 22.

“Ventana’s board of directors has been dedicated to ensuring that any strategic value creation opportunities with Roche or other third parties would adequately reflect the inherent value of the company, its steady growth momentum, and the magnitude of potential synergies in a combination,” Gleeson said.

He said the board believes the transaction, at $89.50 a share, is in the best interests of Ventana’s shareholders and “we recommend that our shareholders tender into this revised offer.”

Gleeson will continue as CEO of Ventana’s business following merger close and will become a member of Roche’ executive committee. Ventana will remain based in Tucson, Arizona, and its employees will become part of the combined company.

While the dance appears to be in its final stages, a report on the Forbes.com web site indicated that may not be the case.

Though Ventana’s board has approved the deal it was reportedly over the objections of Chairman Jack Schuler and Vice Chairman John Patience. Neither has agreed to sell their shares to Roche. That’s 12% against the deal.

Larry Feinberg, manager of the Oracle Partners hedge fund, which owns another 8% of Ventana’s stock, said he believes that Roche’s $89.50 offer is too low. The day before the announcement, Ventana’s stock closed at $85.33. Feinberg said he doesn’t want to sell his shares of Ventana for under $100. Since Feinberg, Schuler and Patience represent a fifth of the votes, they can potentially disrupt the deal.

Roche said that the acquisition of Ventana, a developer of tissue-based cancer diagnostics, will broaden its diagnostic offerings in both in vitro systems and oncology therapies.

“Our combined company will be uniquely positioned to further expand Ventana’s business globally and together develop more cost-efficient, differentiated and targeted medicines. We are delighted to welcome the employees and management team of Ventana and look forward to jointly developing novel solutions for our customers,” said Franz Humer, Roche CEO and chairman.

Greenhill & Co. and Citi acted as financial advisors to Roche; Davis Polk & Wardwell acted as legal counsel. Merrill Lynch & Co. and Goldman Sachs acted as financial advisor, and Sidley Austin acted as a legal advisor to Ventana.

In other dealmaking activity:

• Werfen Group (Barcelona, Spain), a company that develops in vitro diagnostic solutions and devices, said it will acquire all outstanding shares of Inova Diagnostics (San Diego), a manufacturer of in vitro diagnostic tests for autoimmune diseases. Financial terms were not disclosed.

The deal is expected to close in 1Q08.