March 4, 2009

More on Roche and Genentech’s Tangled Web

– by Kevin Miller, Alston & Bird

As a follow-up to the excellent piece by John Jenkins, I thought the following point worth noting:

Under Pure Resources, any shareholder of Genentech should be able to get Roche’s tender offer enjoined until Genentech publicly discloses a summary of the financial analyses of Goldman Sachs underlying Goldman Sach’s inadequacy opinion on which the Genentech special committee relied in recommending that shareholders not tender their shares into the Roche offer.

That result was intended by the Pure Resources court to force the Pure Resources special committee to disclose the valuation ranges indicated by its financial advisors’ analyses so that shareholders could make an independent decision based on that analysis whether to tender or not. The Pure Resources court argued that because the special committee failed to obtain the right to implement a poison pill (just imagine the likelihood that Roche’s representatives on the Genentech board would authorize an independent special committee of Genentech directors to implement a pill), the special committee had no negotiating leverage and forcing the special committee to disclose its reserve price would not have adverse consequences, as shareholders were being left to their own devices and it was their reserve price that mattered.

The Pure Resources court’s ruling was problematic for a number of reasons including, among other things, that the court, rather than mandating that the special committee disclose a summary of its financial advisors’ valuation analyses, enjoined the offer, essentially playing into the hands of a spec. comm. recommending against the offer by giving them the ultimate defensive device, a judicial injunction.

So long as the Genentech special committee is not satisfied with the price offered by Roche, it should refuse to disclose a summary of GS’s financial analyses and welcome shareholder suits seeking to enjoin the offer on the basis of inadequate disclosure. For additional – and more detailed – criticisms of the Pure Resources decision, see my article.