Biotech Values

[corpstrat]

DNA - I'd still be intrigued to understand the valuation driver of a stock when there is only one possible acquirer and no dividends. (So it's not like owning a house with a covenant allowing sale to only one named potential buyer. One gets use value from living in the house.)

So, for example, does a successful forthcoming Avastin result necessarily translate into higher value for the minority's shares, as many punters assert?

The IB fair value mechanism would appear to be the only way to prevent Roche from saying 'the shares are worth what we say they are worth,'but you are saying that IB mechanism is unlikely to be triggered. The minority can certainly refuse to hand over the shares at Roche's price: a Mexican standoff.

It appears to be a game of bluff. Roche wants the merger, but can always walk away if the price required to win a majority of the minority shares is too high for their liking. If Roche walks away, the shares could drop significantly. Roche may need to let this happen to teach the holders that lesson, and then come back and try again. In the meantime, though, their US operation, which they announced last July will fold into Genentech, is half-pregnant. As long as that does not drag down near-term earnings, Roche probably does not care.

I think there's a fair chance holders will miscalculate and provoke a temporary walkaway. The difficulty of financing the deal supports that chance. But I'm not sure there's an efficient way to bet on this because the timing is indeterminate. Or is it?