Swiss drugmaker Roche Holding AG has lowered its offer price for the 44 per cent outstanding shares in Genentech to $86.50 per share, valuing it at $42 billion against its earlier bid totalling $44 billion.

Roche, which already owns 55.8 per cent of the Genentech, expects to commence the all-cash offer within two weeks.

The offer replaces the public proposal made by Roche on 21 July 2008 to acquire all of the publicly-held shares of Genentech at a price of $89 per share in cash by means of a negotiated merger (See: Roche confirms plans to acquire remaining 44 per cent in Genentech) 

After receiving Roche's original proposal, the board of directors of Genentech, with the full support of Roche, created a special committee comprised of independent directors to consider and respond to the Roche proposal. On 13 August 2008, the special committee announced its rejection of Roche's proposal (See: Genentech rejects Roche's $43.7-billion takeover offer as too low). In light of the lack of progress towards an agreed transaction since then, Roche has now decided to make an offer directly to Genentech shareholders, the company said in a website release.

''We intend to create unrivaled benefits for our patients, employees and shareholders by combining Roche and Genentech. We are disappointed that the discussions over the last six months between Roche and the special committee of Genentech have not produced a negotiated agreement. We feel it is now time to give the Genentech minority shareholders the opportunity to decide on our offer. Especially in the current market environment the offer provides an opportunity for all public shareholders to achieve liquidity and to receive a fair price for all their shares,'' Franz B Humer, chairman of the Roche Group, said commenting on the offer.

''This offer does not change our initial plan on how we combine the two companies and operate the new entity. We have great respect for our colleagues at Genentech and we will take the necessary steps to nurture Genentech's innovative and unique science-driven culture,'' added Severin Schwan, CEO of the Roche Group.

Roche said it plans to operate Genentech's research and early development activities as an independent unit within Roche from its existing campus in South San Francisco post acquisition.

Roche's Pharma commercial operations in the US would 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,. It added.

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, New Jersey research and development organisation. 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 organisation. The structure of the combined company will allow for a diversity of approaches in research and early development, while also strengthening cross fertilisation between the companies, leading to enhanced overall innovation within the group.

Roche said the current offer is conditional upon, among other things, (i) a non-waivable condition that holders of at least a majority of the outstanding publicly-held Genentech shares tender their shares in the offer and (ii) that Roche has obtained sufficient financing to purchase all outstanding publicly-held shares and all shares issuable upon exercise of outstanding options and to pay related fees and expenses.

If following the consummation of the offer Roche owns 90 per cent or more of the Genentech shares, Roche will seek to consummate a merger with Genentech.

Roche said it planned to finance the transaction by a combination of its own funds, commercial paper, bonds, as well as a traditional bank financing.

The commencement and completion of the tender offer does not require any approval by the special committee or the Genentech board, and Roche has not asked the special committee to approve the tender offer. The complete terms, conditions and other details of the Roche offer will be contained in materials filed with the US Securities and Exchange Commission when the offer commences.

Greenhill & Co is acting as financial advisor to Roche and Davis Polk & Wardwell is acting as legal counsel in connection with the tender offer.