As Roche promised earlier this month, it commenced a tender offer to acquire all of the outstanding shares of Genentech it doesn’t own for $86.50 cash per share. And as Genentech promised, it evaluated the offer and issued a statement to stockholders on Monday. As expected, Genentech rejected the offer.

The special committee of Genentech’s board of directors found Roche’s second, and lower, offer “inadequate” and advised shareholders not to tender their shares. Monday’s press release echoed the language Genentech used to describe Roche’s first offer of $89 per share last August, saying it
“substantially undervalues” the company.

Genentech’s special committee told Roche in December 2008 that its stock is worth between $112 and $115 per share, and that the company would be willing to pursue a deal at $112, according to Roche’s filing of the tender offer with the US Securities and Exchange Commission. On Jan. 23, 2009, representatives of the companies discussed the price again, with Genentech sticking to $112 and Roche backing $89; neither agreed that the other’s price was “an appropriate starting point for negotiations.”

Roche said in the SEC documents that the reduced offer of $86.50 per share was a result of the “unprecedented” economic conditions that have occurred worldwide since its first offer was made in July 2008. In light of these economic factors, Roche believes its offer to be fair to shareholders.

In rejecting this offer, it seems Genentech is looking for something closer to the $112-per-share mark. Some reports cite analysts who believe the companies will come to an agreement near the $95 to $100 range; most say that the majority of Genentech’s shareholders will not tender their shares. Roche’s offer will expire on March 12, 2009. Meanwhile, the results of a clinical trial for Genentech’s “Avastin,” which focuses on the drug’s treatment of patients who have had colon cancer surgery, could come as early as April, which could affect negotiations if they are still going on at that time.