Roche shareholders must feel as though they got some bad stuff when they handed over $46.8 billion to buy Genentech in March. In a major study, Avastin, Genentech’s colon cancer drug, failed to prevent the recurrence of colon cancer in patients who had undergone surgery. Roche shares promptly tumbled.

Roche investors were thinking Avastin sales would double from $4.4 billion, and Roche still sounds confident that the drug will do about that well treating colon cancer in its earlier stages, as it was designed to do. Roche said a positive result on the study was not a foregone conclusion, calling its success a “coin toss.” But this is unlikely to placate its stockholders because it implies Roche didn’t adequately account for the risk.

In fact, it looks increasingly like Roche was high on Avastin’s prospects when it raised its offer for Genentech, apparently trying to get in before a would-be positive result from the study drove Genentech’s stock any higher.

Deals of the day:

* News Corp’s stake in German pay-TV broadcaster Premiere will grow to 30.5 percent as the media conglomerate agreed to take up almost a third of new shares issued in Premiere’s second capital hike.

* British telecoms and retail group Carphone Warehouse beat fourth-quarter customer growth forecasts and raised cash flow guidance for 2009-10, boosting its shares as it confirmed plans to split in two.

* British property investor Carpathian received a 20 euro cents per share indicative offer from New Europe Property Investments, the companies said, sending Carpathian shares up as much as 32 percent.

* Dutch insurer Aegon became the latest foreign insurer to exit Taiwan as it sold its Taiwanese life insurance unit, resulting in a 400 million euro negative hit to second-quarter earnings.

* Africa Israel Properties, a subsidiary of real estate developer Africa Israel Investments, said it has agreed to sell a Tel Aviv property for 166.5 million shekels ($39.5 million).

(PHOTO: A woman holds the antidepressant drug Prozac, also known as fluoxetine, in Leicester, central England February 26, 2008 in this posed photograph. REUTERS/Darren Staples (BRITAIN)

As dealmakers everywhere struggle to get deals done, the healthcare industry seals yet another one.

Express Scripts has agreed to buy health insurer WellPoint’s prescription business for $4.68 billion in a significant expansion for the U.S. pharmacy beenfit manager. The deal will be a concoction of cash and up to $1.4 billion in common stock, and will generate more than $1 billion of incremental EBITDA.

This comes on the heels of Pfizer’s $68 billion acquisition of Wyeth, Merck’s $41.1 billion takeover of Schering Plough and Roche Holding’s $46.8 billion buyout of Genentech. Granted, this isn’t a pharma deal, but it still falls under the umbrella of the healthcare sector.

And in a market where deals aren’t getting done — mainly due to tight credit conditions and partly due to value gaps between buyers and sellers (due to the huge declines in stocks late last year) — you’ve gotta ask: what’s the magic pill?

Deals of the day:

* Indian mid-sized IT outsourcer Tech Mahindra won a bidding auction for a majority stake in fraud-hit Satyam Computer Services Ltd, edging out Larsen & Toubro, seen by some analysts as the favourite bidder. 
    
* India’s Larsen & Toubro, which has built up a 12 percent stake in Satyam Computer Services, plans to hold on to the stake, its chief financial officer said on television channel NDTV Profit. 
    
* Pakistan’s Habib Bank Ltd. (HBL) and MCB Bank are interested in buying the operations of Royal Bank of Scotland (RBS) in the South Asian nation, the two banks said in separate statements on Monday. 
    
* A bid by Japan’s Mitsubishi Rayon Co for unlisted British chemicals maker Lucite International has hit a hurdle in China where regulators have delayed the acquisition, two sources briefed on the matter said. 

* Orascom Telecom said on Monday it was proposing to extend the deadline to April 15 for implementing a court order for the Egyptian firm to sell its shares in mobile firm Mobinil to France Telecom.

Morgan Stanley’s jump from 10th to first in our M&A league table should put them on cloud nine. The first quarter was busy with drug deals, and Morgan Stanley was in on the biggies: advising Wyeth on its $64.5 billion acquisition by Pfizer, and Schering Plough on its $46 billion takeover by Merck. And with the ink still to arrive on the paper of both deals, more good stuff could be on the horizon. The trick for Morgan Stanley, and anyone wanting to take down the king of the hill, is to spot and exploit the trend.

If drug deals remain du jour — and many expect the sector to stay hot, despite all the swallowing going on — the trend will certainly be toward Biotech. The markets for biologics and pipeline-filling cancer treatments have been strong in the face of expected government action to lower doctor and drug bills.

The heightened merger activity in Big Pharma has switched the tables a bit in the sector. After Roche’s nearly $47 billion acquisition of Genentech, analysts became increasingly convinced that the remaining big biotechs like Celgene, Gilead, Genzyme, Biogen Idec and Amgen could emerge as buyers, given that traditional Big Pharma is either digesting deals or just not so big anymore.

Christopher Kaufman; DealZone Editor

Deals of the Day:

* Drug maker Lupin Ltd said it has acquired a 51 percent stake in Multicare Pharmaceuticals Philippines Inc, marking the Indian firm’s foray into the $2.5 billion Philippines pharmaceuticals market.

* Britain-based dairy products maker Dairy Crest said it had sold its 49 percent stake in Yoplait Dairy Crest (YDC) to the Yoplait Group for 63.5 million pounds ($92.66 million) and that it would use the cash to reduce debts.

* Austrian steelmaker Voestalpine said its North American unit, VAE Nortrak had acquired U.S-based Leading Enterprises Inc, a supplier of speciality components for railway tracks, as part of a plan by the company to expand its railway division.

(PHOTO: A sign is pictured on Wall St. near the New York Stock Exchange in New York November 25, 2008. REUTERS/Lucas Jackson )

After eight months of playing hard to get, cancer drug maker Genentech has agreed to be bought by Roche for $95 per share — a price Roche didn’t think it would have to pay. The strength of the dollar makes the deal even more expensive for Switzerland-based Roche, but it may feel it got off easy, given talk that Genentech management might hold out for as much as $120 per share.

Following Pfizer’s bid for Wyeth and Merck’s offer for Schering-Plough, that makes nearly $160 billion in Big Pharma deals so far this year. The last two big U.S. pure pharma companies still unattached are Bristol-Myers Squibb and Eli Lilly. Both are probably feeling a bit lonely, particularly Bristol, which installed a dealmaker CEO a couple of years ago.

Bristol and Lilly, the grande dames of the industry, face increasing competition from generics and are struggling to keep their pipelines pumped up. They’ve been hunting for exciting biotechs and makers of hot new biologic drugs, preferably in cancer or another big disease market, as a matter of survival. Lilly already has some exposure here, having bought Erbitux maker ImClone last year for a far less exciting $6.5 billion.

Genentech’s demise leaves Amgen as the big biotech in the living room. At about $50 billion, it’s half the size of Genentech, but $10 billion bigger than Bristol Myers and worth $15 billion more than Lilly. There are plenty of smaller, potentially riskier biotechs out there, but maybe Not-So-Big Pharma will have to compete with bigger biotechs in the Darwinian drive for the next best drug.

Other Deals of the Day:

* Gilead Sciences agreed to acquire CV Therapeutics for $20.00 per share, in a transaction it said was valued at about $1.4 billion.

* Japanese non-life insurers Sompo Japan Insurance and NipponKoa Insurance plan to merge, an industry source said, in the second deal in less than two months in a sector struggling with slumping demand and a dwindling, ageing population.

* Asahi Breweries, Japan’s largest beer maker, said it has agreed to buy the Australian beverage business of British confectionery maker Cadbury for A$1.185 billion ($769.5 million).

* BMW reiterated that it has neither plans nor intention to take stake in General Motors Corp’s Opel business denying newspaper reports.

* British oil and gas company Valiant Petroleum said it agreed to buy Nor Energy (UK) Ltd, a unit of privately held Norwegian firm Nor Energy AS, raising its stake in the Causeway Field in UK North Sea to 24.5 percent.

* Japan’s Seiko Epson said it would start talks with Sony Corp on an alliance in the small- to mid-size LCD display business, including a possible transfer of some of Seiko Epson’s LCD assets to Sony. The companies said they aim to agree on a deal by June.

* Logistics firm Gati said it plans to acquire the remaining 26.28 percent stake in trucking company Kausar India Ltd.

* India’s fraud-hit Satyam Computer Services closes registrations for potential bidders on Thursday, kicking off a process to sell a majority stake in the company caught in the country’s biggest corporate scandal.

* The French government is mulling opening the share capital of Areva to Middle Eastern investment funds with a view to reinforcing its political influence and the nuclear group’s prospects in the region.

* Axsys Technologies, which manufactures defense surveillance and imaging systems, on Wednesday said it is evaluating a possible sale, confirming a Reuters story that sent the company’s stock up 37 percent.

(PHOTO: A customer shops for over-the-counter medicine at a Wal-Mart Supercenter in Rogers, Arkansas June 5, 2008. REUTERS/Jessica Rinaldi)

The market may be sickly, but Genentech investors are in that most rare place, holding a stock that is close to its lifetime high of just over $100 with a suitor repeatedly raising its bid for the company like it was 2006 all over again.

While Swiss drugmaker Roche says its latest official bid of $93 per share for the U.S. biotech, made last Friday, is fair, a source tells us they are prepared to go to $95, valuing the deal at $46.7 billion. Roche shareholders seem happy with the bidding so far, trading the shares higher today as the company talks to investors at its AGM.

Genentech would give Roche a big shot of lucrative cancer drugs and other medicines, including Avastin, which is approved to treat advanced colon, breast and lung cancers and is being tested for several other uses. And with Big Pharma marriages all the rage in ‘09, Genentech investors must feel like the best natural selection in the market right now.

Deals of the Day:

* The parent of China Shipping Development may sell its LNG business with the parent of PetroChina to the listed vehicle, analysts said.

* China is reviewing Coca-Cola’s bid to acquire China Huiyuan Juice Group under the anti-monopoly law, Commerce Minister Chen Demin said on Tuesday.

* Santander, Spain’s biggest bank, bought out Tokio Marine Holdings’ stake in a jointly owned Brazilian insurance group for 678 million reais ($284.9 million), aiming to strengthen its position in Brazil.

* Precious metals company Hochschild Mining PLC said on Tuesday it agreed to buy Southwestern Resources for $17.5 million in cash.

(PHOTO: A forensic expert points on the image of a genetic blueprint in the DNA lab at the new building for the crime tech institute in Wiesbaden February 29, 2008. REUTERS/Alex Grimm)

It wasn’t quite the market response Genentech CEO Arthur Levinson was looking for.

Levinson and his team worked hard to make the bull case for the biotech group by providing long-term forecasts to prove it is worth far more than Roche is willing to pay. Yet Genentech shares still ended down 4.6 percent, or nearly $4, in line with a grim market on March 2.

Roche investors, by contrast, were in distinctly chipper mood on March 3, marking up the Swiss group’s stock by more than 5 percent. 

Why the skewed response? JP Morgan analysts put it down to the fact that positive news for Genentech is also good for Roche (after all, it already owns 56 percent of the U.S. business) and such news could actually have a bigger impact on the Swiss group because it trades on a much lower multiple.

“Most factors cited by Genentech to highlight the value of the business represent an even greater upside to Roche shareholders, as that upside could be leveraged outside the U.S. and should boost what is currently a much lower Roche valuation,” the brokerage’s analysts adds.

Ironically, one reason Roche lost some of its previous lustre was worry over its multibillion play for Genentech.  

Roche is attempting to acquire the 44 percent of Genentech it does not already own for about $42 billion, or $86.50 per share. Most analysts expect it to end up sweetening the offer to clinch the deal.

Expect a bruising fight.

In the battle for control of the world’s most valuable biotech company, Roche CEO Severin Schwan is playing hard ball. The reason is simple: he needs to clinch a deal that clearly enhances earnings.

The Swiss drugmaker has been the most highly rated Big Pharma company for years but financial results last week suggest it may be losing its mojo. Certainly, its premium rating is slipping.

Genentech had wanted $112 a share but Roche’s tender offer for the 44 percent of Genentech it doesn’t already own actually cuts the price to $86.50, or about $42 billion, from the $89 proposed last July.

The coming weeks promise plenty of argument about the true value of Genentech. In particular, the market and clinicians are awaiting results from a trial of blockbuster drug Avastin in colon cancer patients who have had their tumours removed through surgery.

Success would greatly expand Avastin sales, but the jury is out on how well Avastin will work in this setting. Roche sees a 55 percent chance of success; Genentech puts the odds at 61 percent.

More fundamentally, the battle risks breaking down into a culture clash between the suits from Basel and the men in lab coats from San Francisco.

Roche insists that fears for Genentech’s informal culture are unfounded.  Yet a growing number of talking-heads see the tussle in exactly those terms.  

“Billions of dollars are at stake, but at heart it’s not really about money. It’s as much a confrontation of cultures,” former Sunday Times editor Harold Evans  argues in a piece for BBC radio.

The credit crisis may just be the leverage Roche needs in its bid for Genentech.

The Swiss drug maker went hostile with its bid to buy the 44 percent of Genentech it doesn’t already own. But in a rather unusual move, it has gone to shareholders with an offer that is actually lower than the $44 billion bid it initially made for the U.S. biotech group.

Investors now have a public tender offer at $86.50 per share in cash, valuing the deal at $42 billion, down from $89 per share earlier.

After the initial announcement in July, Genentech shares rose to a high of $99.05, but later fell back below the offer price as the credit crisis bit, giving Roche the leeway to lower its bid.

Roche had initially aimed to acquire the remaining shares through a negotiated settlement — an offer rejected by Genentech — and decided to appeal directly to shareholders after further talks failed to reach an agreement.

Genentech could have been trying to delay the process until key clinical data on its blockbuster cancer drug Avastin due in April — when positive results could drive up the company’s value, analysts said.

DEALS OF THE DAY

** Toshiba is in talks to merge part of its chip operations with NEC Corp’s semiconductor unit, a source said, as a sharp global slowdown forces Japanese chip makers to cut jobs and try to band together.

** India’s Spice Group is ready to invest about 20 billion rupees ($408 million) in Satyam Computer Services and wants to buy a 51 percent stake in the fraud-scarred outsourcer, Spice Chairman B.K. Modi said.

** Satyam said asset manager Fidelity Investments had raised its holding to 6.79 percent in the Indian outsourcer, which would potentially make it the second largest stakeholder.

** Commodities firm Noble Group and Indonesian coal miner PT Indika Energy are among the companies pursuing a bid for Straits Asia Resources, according to sources familiar with the matter, in a deal that could be worth more than $800 million.

** Billionaire Alisher Usmanov sold his majority stake in a gigantic gas deposit to the banking arm of Russian gas export monopoly Gazprom, taking its share in the field to 100 percent, a paper said. 

** Anglo-Australian fund manager Henderson Group unveiled a 115 million pounds ($162.3 million) offer for struggling rival New Star Asset Management.

** U.S. diagnostics firm Gen-Probe announced a recommended offer to buy British testing company Tepnel for $132.2 million in cash.

** Hospital chain Fortis Healthcare said it acquired a majority stake in Bangalore-based Apollo RM Hospital, widening its presence in south India.

(Photo: REUTERS/Christian Hartmann)

At a time when many dealmakers want to prove their ability to fund an acquisition, Swiss drugmaker Roche Holding AG is staying mum on how it would pay for its bid to buy the rest of Genentech.

“At this point we would not give any details or further information on how we arrange the financing and where exactly we stand in the negotiating process,” Roche Chief Executive Severin Schwan told reporters.  “I would like to reaffirm that we remain committed to the deal and we aim for a negotiated settlement.”

Earlier this month, Roche was in talks with a group of 10 to 15 banks regarding funding, but talks were characterized as “slow” by bankers close to the deal.

When Roche first made its $89 per share offer in July to buy the 44-percent of Genentech it does not already own, it cited the weak dollar as an attractive incentive. Since then, the more than 10 percent increase in the value of the U.S. dollar versus the Swiss franc has prompted some analysts to question whether the deal would be too costly.

Roche has said, however, the currency changes had not altered its willingness to do a deal. On Tuesday, when Roche reported its nine-month results, it said its strong cashflow in the U.S. was a natural hedge for the Genentech bid.

Genentech rejected the $89 per share offer, saying it undervalued the company. Shares of Genentech traded at $85.59, up $1.33, in midday trading on Tuesday. In a Reuters poll in August, the consensus of industry analysts was that Roche would have to hike its offer to about $107.50 per share, raising the cost of the deal to $53 billion from $43.7 billion.

Rodman & Renshaw analyst Christopher James said on Tuesday he saw $95 per share as a fair value for Genentech, and an acquisition premium would push the price “well above $100 per share.”

That’s a lot to finance, especially at a time when other mega-deals, such as InBev’s acquisition of Anheuser-Busch, have been slow to syndicated funding that was already secured.

Pity the guys who dreamt up two of Wall Street’s coolest tickers — DNA and BUD — both of which look set to be consigned to the dustbin of history.

Genentech grabbed the three letters synonymous with biotechnology by being in on the ground floor of the gene revolution. Anheuser-Busch was lucky enough to have a beer brand known everywhere by one syllable. Now both look doomed.

Genentech faces a $43.7 billion bid from Roche for the 44 percent of the Californian biotech group that it doesn’t already own. Genentech is expected to succomb, albeit after a possibly sweetened offer. Anheuser has already agreed to a $52 billion takeover by InBev.

Their demise may take some of the fun out of stock trading – but investors shouldn’t despair. The thoughtful punter still has other options.

For example:

- BID for auctioneer Sotheby’s

- HOG for Harley-Davidson

- TAP for brewer Molson Coors

- JAVA for Sun Microsystems

- CAR for Avis Budget

- PZZA for pizza company Papa John’s

- BLUD for blood test group Immucor

- LUV for Southwest Airlines (after its Love Field airport in Dallas)

- LVB for Steinway Musical Instruments (after Ludwig van Beethoven)

- LIZ for Liz Claiborne

- PUB for Britain’s Punch Taverns

- WOOF for pet healthcare provider VCA Antech…does that take the biscuit?

And not forgetting the grandaddy of them all:

- T for AT&T (it stands for telephone, of course).

Genentech, meanwhile, will at least keep one thing when it becomes part of a Roche — an ultra-cool address at 1 DNA Way, South San Francisco.

(Photos: Reuters)