Following what it said were “friendly” offers to consummate a merger, diagnostics powerhouse Roche (Basel, Switzerland) has decided to play hardball with the board of Ventana Medical Systems (Tucson, Arizona) and take its $75-a-share all-cash offer directly to the company’s stockholders.
If the hostile bid, valued at about $3 billion, is successful, it would be the latest in a recent string of mammoth mergers in the diagnostics market over the past couple of months.
Last month, Qiagen (Venlo, the Netherlands) agreed to acquire Digene (Gaithersburg, Maryland) for $1.6 billion (Medical Device Daily, June 5, 2007). The month prior to that, Inverness Medical Innovations (IMI; Waltham, Massachusetts) beat out rival Beckman Coulter (Fullerton, California) for the right to acquire Biosite (San Diego) for $92.50 a share (MDD, May 11, 2007).
IMI also acquired Cholestech (Hayward, California) last month for $326.3 million (MDD, June 5, 2007) and Roche itself, via its Roche Diagnostics (Mannheim, Germany) unit yesterday reported that it had completed its $600 million acquisition of BioVeris (Gaithersburg, Maryland) which it first disclosed in April (MDD, April 5, 2007). The diagnostics unit also recently acquired 454 Life Sciences (Branford, Connecticut), part of Curagen (New Haven, Connecticut), for $155 million (MDD, March 30, 2007).
Roche said the offer for Ventana represents a 44% premium to Ventana’s close of $51.95 on June 22, and a 55% premium to its three-month average of $48.30. It sees the acquisition of Ventana, a player in the fast-growing histopathology (tissue- based diagnostics) segment, broadenening its diagnostic offerings and complements its position in both in vitro diagnostic systems and oncology therapies.
“We believe our proposal for Ventana represents a unique opportunity for both our companies and their respective stockholders,” said Franz Humer, CEO and chairman of Roche during a conference call on the proposed merger. “Ventana will be an outstanding addition to the Roche Group, and we believe we are the best strategic partner to capitalize on Ventana’s potential. We hope that Ventana’s board and management will commence discussions with us to effect a negotiated transaction.”
While Roche said it had decided to unilaterally initiate a tender offer, it held out an olive branch of discussing a negotiated transaction agreed to by both parties, “as this continues to be Roche’s preferred option.”
Roche acknowledged that the tender offer remains subject to Ventana pulling its “poison pill,” or shareholder rights plan, which would make an unsolicited acquisition costly and difficult.
Humer said Roche has made overtures towards Ventana as far back as January, expressing interest in a combination with the company. Humer said his latest offer was sent to Venatana in a letter last week, but when Venatna’s board did not respond, Roche felt compelled to make the offer public.
Ventana employs around 950 people and had sales of $238.2 million in 2006. It estimates the tissue-based testing market at $1 billion annually and growing at 10% annually, twice the rate of the overall in vitro diagnostics market.
Key growth drivers in this market include test automation and standardization, the increasing incidence of cancer, and the increasing number of targeted cancer drugs requiring companion diagnostics. If consummated, this transaction would position Roche with the most comprehensive diagnostic portfolio for enabling development and commercialization of personalized healthcare solutions in oncology.
“Our combined company will be uniquely positioned to develop companion diagnostics which enable the identification of patient responses to treatments, thereby offering more cost-efficient, differentiated and targeted medicines to patients,” said Severin Schwan, CEO of Roche Diagnostics.
Roche said it would operate Ventana as a dedicated business within the Roche Diagnostics division, and would retain Ventana’s headquarters in Tucson.
Schwan stressed that the Venatana buy would be synergistic to the company not from a cost point of view but rather as a benefit to its R&D efforts “by the development of targeted medicine and then on the commercialization if we bring those products to market on a worldwide basis.”
Ironically, less than a year ago, Ventana was involved in a bitter three-way bidding war of its own to acquire Vision Systems (Melbourne, Australia), a bid it and fellow competitor Cytyc (Marlborough, Massachusetts) ultimately lost to late-comer Danaher (Washington) which paid $520 million for Visions Systems (MDD, Oct. 11, 2006).
If anyone at Ventana was agitated about Roche’s offer, they certainly played it cool in public, saying only in a statement that the company’s board would consider Roche’s offer and, following the commencement of the tender, would make a recommendation to shareholders within 10 business days. It urged its shareholders not to take any action at this time in response to Roche’s announcement, possibly holding out for more cash.
Merrill Lynch & Co. is acting as financial advisor and Sidley Austin is acting as a legal advisor to Ventana. Greenhill & Co. and Citi are acting as financial advisors to Roche, and Davis Polk & Wardwell is acting as legal counsel for the company in its merger bid.