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Executive Summary

ROCHE AND GENENTECH SIGN CONSENT ORDER ALLOWING MERGER go-ahead under terms of an agreement with the Federal Trade Commission reached on Aug. 31. The consent order that contains the agreement requires several product divestitures, clearing the way for the completion of Roche Holding's $2.1 bil. acquisition of 60% of Genentech, announced Feb. 2 ("The Pink Sheet" Feb. 6, p. 3) and approved by shareholders June 8. The two companies said Aug. 31 that they expect to close the deal "on or about Sept. 7." The consent decree, which will be published in an upcoming Federal Register, requires Roche to divest its technology in human growth hormone-releasing factor and to grant non-exclusive licenses to its CD4 AIDS drug under its U.S. patents. Genentech will be required to step out of a partnership for the development of ascorbic acid. The planned divestitures will eliminate overlaps that raised FTC's antitrust concerns. The commission extended the Hart-Scott-Rodino waiting period for the merger several times while it sought additional information on possible anticompetitive results. Roche is a leading supplier of ascorbic acid; Genentech was attempting to move into the category. Genentech's first approved product is the human growth factor Protropin (somatrem for injection), which had sales in 1989 of $196 mil., while Roche owns the technology for the HGH-releasing factor. Genentech is focusing on the development of a second-generation CD4 -- CD4 in combination with human immunoglobulin G (IgG) -- backed by $72.5 mil. in R&D funding from a private limited partnership ("The Pink Sheet" Sept. 4, 1989, T&G-4). Roche has been very active in the AIDS and biologicals research area. As part of the merger agreement, Roche's Chief Operating Officer and board member Armin Kessler and Jurgen Drews, head of Roche corporate research and an Executive Committee member, will take seats on Genentech's board. Genentech stockholders of record at the time of the merger will receive $36 in cash and one share of redeemable new common stock for each two shares of Genentech they control. The new stock is approved for listing on the NYSE. Over the next five years, Roche has the right to redeem the remaining 40% of Genentech stock outstanding on an ascending sliding scale ranging from $38 to $60 per share. Roche also has the right to purchase additional shares to raise its equity holdings to 75%. Roche is also investing $492 mil. in Genentech with the purchase of 22 mil. of the new issue common stock which, combined with Genentech's over $200 mil. in cash and equivalents, will give the biotech a total cash balance post-merger of approximately $600 mil. Total merger expenses are estimated to be $170 mil., $18.9 mil. of which was charged to the first quarter. One of the terms of the merger agreement is that either company could withdraw from the proposal if it is not completed by Sept. 1. Both companies have agreed not to exercise their termination rights prior to Sept. 15. The FTC consent order, following a 60-day public comment period after its publication, is still subject to final approval by the commission.

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