By Sam Cage

Roche Holding AG's new and lower offer, pitched directly to shareholders, was a surprise and reflected tougher financing conditions and a drop in Genentech Inc shares, analysts said on Friday.

"We are confident that we will have the financing available when the money is needed," Roche Chairman Franz Humer told reporters.

Roche is now making a public tender offer at $86.50 per share in cash, valuing the deal at $42 billion, replacing its initial bid that totaled $44 billion.

Roche stock rose 1.8 percent to 163.20 Swiss francs by 0924 GMT as investors welcomed the slightly lower price. Genentech shares in Frankfurt rose 1.45 percent to 65.23 euros ($85.32)

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Roche had initially aimed to acquire the remaining shares through a negotiated settlement -- an offer rejected by Genentech -- and decided to appeal directly to shareholders after further talks failed to reach an agreement, Humer said.

"The plan is to use as financing partly our own funds, and then obviously bonds and then commercial paper and traditional bank financing. We will start by going to the bond market first," he said.

Buying Genentech would give Roche control of all revenues for big-selling cancer drugs Avastin and Herceptin, as well as absorbing an attractive portfolio of new medicines, and reflects Big Pharma's rush to acquire biotech assets to fill sparse new product pipelines.

But Andreas Theisen, analyst at WestLB, reckons few Genentech shareholders will jump at the offer.

"We believe Roche aimed to stick to its take-out plans, but is also trying to get some extra time until maybe financing conditions improve," Thiesen said.

PFIZER RAISES THE STAKES

Roche's new offer is at a premium of nearly 3 percent over the Genentech's closing price of $84.09 on Thursday.

Roche had originally bid $89 per share, aiming to grab a greater share of Genentech's promising future earnings profile, based on blockbuster cancer drugs Avastin and Herceptin.

Initially, shares in Genentech rose to a high of $99.05, but later fell back below the offer price as the credit crisis bit, which gave Roche leeway to lower its offer.

And this week Pfizer Inc's $68 billion bid for Wyeth , which was backed by a new $22.5 billion loan in addition to cash and stock, upped the stakes further, indicating pharmaceutical sector M&A was far from dead.

Roche made a fresh round of calls to banks after news of that deal emerged, bankers close to the deal told Reuters.

Business leaders meeting in Davos, meanwhile, said they saw opportunities in the global downturn, though leverage is out and a hard-nosed focus on cost cutting is the order of the day.

Roche declined to give details of how its planned financing would break down.

Roche, which currently owns 56 percent of the Genentech outstanding shares, expects to commence the tender offer within approximately two weeks.

Greenhill & Co is financial advisor to Roche and Davis Polk & Wardell is legal counsel for the tender offer.

(Additional reporting by Katie Reid, Sven Egenter and Paul Arnold; Editing by Mike Nesbit and Hans Peters)

($1=.7645 Euro)