Trading at $79.84, shares of Genentech (DNA: 81.80, 0.00 (0.00%)) now trade more than 11% below Roche’s tender offer of $89.00 a share issued in July. At the time the bid was announced, shares of Genentech rose to $99.00, reflecting the market’s view that Roche would have to come back with a higher bid. Later that day, Genentech rejected the offer stating $89 per share did not reflect the true value of its pipeline.

Let’s take a look at some of the reasons Roche decided to make a bid for Genentech. First, Roche (RHHBY: 0.00, N/A (N/A)) has been experiencing significant pressure to replace its antiviral franchise which has been holding up the company’s earnings over the past few years. Roche reported a 2% decline in quarterly sales as sales for one of its best selling drugs, Tamiflu, declined 69% to 428 million francs. The company, which already owns 56% of Genentech, said one of the main reasons it put in the bid was because of the recent weakness in the US dollar. However, due to the worsening global credit crisis and fervent demand for the American currency, the US dollar has appreciated about 14.5% against the Swiss Franc since the $89 bid was announced. That means the $89 per share bid will now cost Roche slightly over $99 per share.

Some analysts believe Genentech will not take any bid under $105 seriously. A $105 bid from Roche in July would be the equivalent to a $119.70 bid today. Talk about a foreign exchange effect! Roche is currently sitting on an AA- credit rating and about $4 billion in cash. Their credit rating was lowered by S+P earlier this year based on the Genentech bid. $4 billion is not a significant amount of cash considering two of its competitors, Pfizer (PFE: 16.37, 0.00 (0.00%)) and Novartis (NVS: 47.01, 0.00 (0.00%)), are sitting on $28 billion and $16 billion in cash respectively.

Based on my calculations, the 44% of shares Roche does not own is worth roughly $37 billion when shares trade at $80.