Case Roche

3919 Words Feb 23rd, 2012 16 Pages
Advanced Corporate Finance

Final Case: Roche
Deadline: Wednesday, October 12th, 2011 9:00

Bokhoven, Kim 5876192
Bor, Lisa van den 5933471
Dirven, Mathilde 5883164
Dreteler, Hessel 5921090
Krans, Annemiek 0579327
Rossenaar, Wendy 6043550
Roche, a global pharmaceutical company from Switzerland with Humer as chairman, had owned a majority stake (56%) in Genentech, a successful pioneer in biotechnology. Genentech had worked independently for a very long time, and most minority shareholders where employees of Genentech itself. On July 21, 2008 Roche had publicly offered to buy all of the remaining shares of Genentech (44%). After this offer of $89 per share had been open for six months, with little progress toward a deal, Humer
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Because the expectations are that Genentech’s cash flow will remain high, full access to this cash would be in the benefit of Roche e.g. they could repay the debt used for financing the acquisition.

Besides the benefits, there are also several risks involved with the takeover. First, the takeover would cost $44 billion, which partially would have to be financed by debt. The management was not sure if Roche would be able to raise the required debt funding, given the state of the financial markets. In the middle of the financial crisis, banks were not very keen in arranging bridge loans to finance such acquisitions. As a result of this, even if they were able to manage to get a bridge loan, this would be very expensive.

Secondly, it is very hard to value the benefits to Roche in taking over Genentech. One of the causes of a misvaluation is that synergies tend to be mispriced. On top of that, Genentech was waiting on test results of their cancer drug Avastin, which were expected in April 2009. If the acquisition would take place before this date, Roche bears the risk that the drug is rejected. This would result in a drop in value of Genentech. The risk that Roche takes by waiting with the acquisition until after the test results will be published is that if the test results tend to be positive stock price of Genentech would increase. This increase would make a deal substantially more expensive and thus it would make it even harder to