Genentech Ditto's ImClone, Rejects Offer

Genentech (DNA, $98.53, up $0.68) will not win an academy award for its efforts in “evaluating” take-over offers but give the company credit for at least trying. The “special committee” that has been evaluating the $44 billion bid from Roche said this morning that the deal “substantially undervalues” the company and has been rejected.

This was no surprise as Genentech went on to say it “would consider a proposal that recognizes the value of the company and reflects the significant benefits that would accrue to Roche as a result of full ownership.” The language Genentech is using is sounding like a friendly deal could happen but it’s clear the company is holding out for a $100+ offer.

The August 95 calls (DWNHS, $3.60, up $0.85) continue to do well from an entry price of $1.50 and I mentioned you could ride them through Friday. However, we had set a stop of $3.00 so we were taken out yesterday. The August options expire Friday so make sure if you are still in the trade to close it before the trading session ends.

The September 100 calls (DWNIT, $2.95, up $0.45) were profiled at $0.65 and we have set a stop of $2.00-$2.25. The options closed at $2.50 yesterday so let’s make the $2.25 stop a firm one. I want to allow some room for volatility but I really don’t want the stop to kick in on this one. Genentech continues to set new highs and we want to ride the wave as long as we can.

Meanwhile, we closed half of the ImClone (IMCL, $64.00, down $0.51) August 45 calls (QCIHI, $19.50, down $0.15) at $19.00 on 8/1 and set a stop of $18.00 on the rest. These calls were profiled at $2.40 and our return is something even Michael Phelps would envy. These options also expire this Friday so we will go ahead and just close this one out today.

I believe both firms will get higher offers but as always it depends on timing. If Genentech continues higher from here, the September 100 calls should continue to do well. As for ImClone, I’m not sure if there is another good trade out there for us or not. I’ll take a look at the option chains and run some figures but for now we will just go with Genentech.

Rick Rouse
Rick@OptionsMentoring.com

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