Roche to Ventana: "Let's Make A Deal"

Roche really, really, really, really wants to buy Ventana Medical Systems--so much so that it is pursuing a hostile takeover that includes suing both the object of its desire and the state of Arizona. Talk about crazy love.

The Swiss drug behemoth with a big stake in the oncology market made a $3 billion bid for the Arizona-based cancer-diagnostics maker on June 25. Although the all-cash offer was widely viewed as premium plus--Ventana's 70 percent share of the U.S. tissue-based diagnostics market is projected to net it $285 million in '07 sales--the company immediately cold-shouldered the overture, urging shareholders to sit tight.

On June 29, Roche headed to court, filing two lawsuits. In one, the company is seeking to invalidate Ventana's "poison pill" defense against the buyout that would allow shareholders to buy new stock at half price. In the other, Roche is asking a federal judge to declare Arizona's Anti-Takeover Act unconstitutional. The law limits the voting rights of non-Arizonans, meaning that even if Roche grabbed a controlling share of Ventana, it would have to wait three years to throw its weight around.

It's not hard to understand the reason for Roche's ardor. The acquisition represents a perfect fit for Roche, which is trumpeting the offer as nothing less than a great leap forward in personalized medicine. Already a leader in diagnostics, Roche has a majority stake in Genentech, maker of Herceptin, the breast-cancer blockbuster for women whose tumors overproduce the HER-2 protein. Ventana markets a test to detect the cancer-causing protein. Says Severin Schwan, CEO of Roche Diagnostics: "The deal will allow Roche to develop companion diagnostics which enable the identification of patient responses to treatments, thereby offering more cost-efficient, differentiated, and targeted medicines."

Harder to understand is why Ventana isn't biting. According to Morningstar analyst Alex Morozof, the proposed deal is a win-win for both companies. "Ventana's leadership position in the United States would complement Roche's strong presence in Europe," he said. "The diagnostics field is underrepresented and has great growth opportunities. In return, Roche can put its financial capabilities behind Ventana."

Ventana's hard-to-get act may be a ploy, says Miller Tabak healthcare specialist Les Funtleyder. "They may be fishing for a higher price, they may want to be bought by someone else," he says. "On the other hand, they may feel that they can create more value as an independent."

The clock is ticking. The Ventana board must respond to the original Roche offer by Thursday.