ROCHE HOLDING AG: Funding the Genentech Acquisition Harvard Case Solution & Analysis

ROCHE HOLDING AG: Funding the Genentech Acquisition Case Solution

To acquire Genentech; the company needs $42 billion in cash and sell bonds worth $32 billion. The ongoing turmoil in the overall global financial market might posit risk to the company. Also, another risk is little or no willingness of Genentech in selling its shares at the reduced price. Additionally, the financial market is reluctant to interest rate, the interest rate is reduced by central bank & the massive flight to the quality of international investors moving capital to the US treasuries, and the borrowings are increasing as well as the credit spread expanded to the historic level, thus negatively affecting the Roche’s deal.  Also, the equity market prices had decreased to 45 percent and a large number of investment and commercial banks failed. Hence, this is not the right time to pursue the deal of acquiring the Genentech.

            Appendix A – Ratios

 

Appendix B – Trend of AA Spread

 

Appendix C – Trend of BAA Spread 

 

Appendix D – YTM & Spread

Company Issue date Maturity YAM Risk-free rate Spread
U.S. Dollar-Denominated
Altair 03/02/2009 06/02/2014 6.36% 1.87% 4.49%
Altair 03/02/2009 06/02/2019 8.55% 2.85% 5.71%
Altair 03/02/2009 06/02/2039 9.68% 3.59% 6.09%
AT&T 29/01/2009 15/02/2014 4.90% 1.87% 3.03%
AT&T 29/01/2009 15/02/2019 5.95% 2.85% 3.10%
AT&T 29/01/2009 15/02/2039 6.82% 3.59% 3.23%
Johnson & Johnson 6/23/2008 7/15/2038 - 3.59% -
McKesson 09/02/2009 15/02/2014 5.72% 1.87% 3.84%
McKesson 09/02/2009 15/02/2019 6.65% 2.85% 3.80%
Novartis 10/02/2009 10/02/2014 3.73% 1.87% 1.86%
Novartis 10/02/2009 10/02/2019 5.03% 2.85% 2.18%
Pfizer 2/3/2004 2/15/2014 - 1.87% -
Steering-p lough 11/26/2003 12/1/2013 4.23% 1.87% 2.36%
Steering-P lough 9/17/2007 9/15/2037 - 3.59% -
Verizon 04/11/2008 01/11/2018 6.18% 2.85% 3.33%
Verizon 04/11/2008 31/03/2039 6.99% 3.59% 3.40%
Warner Cottontail 01/02/2006 01/02/2015 9.88% 2.03% 7.85%

Euro-Denominated

Anheuser-Busch InBev 09/02/2009 27/02/2014 6.44% 3.01% 3.43%
Imperial Tobacco 10/02/2009 17/02/2016 8.17% 3.35% 4.83%
John Deere 19/01/2009 24/01/2014 6.10% 3.01% 3.09%
Schering-Plough 10/1/2007 10/1/2014 5.44% 3.19% 2.25%
Volkswagen 30/01/2009 09/02/2012 5.50% 2.55% 2.95%
Volkswagen 30/01/2009 09/02/2016 6.96% 3.35% 3.61%
   

Pound Sterling-Denominated

Bayer 23/05/2006 23/05/2018 5.51% 3.50% 2.01%
Imperial Tobacco 10/02/2009 17/02/2022 8.10% 3.89% 4.21%
Tesco 17/02/2009 24/02/2014 4.93% 2.29% 2.65%
Tesco 17/02/2009 24/02/2022 5.91% 3.89% 2.01%

 

Appendix E – Prevailing Spreads for Comparable Bonds

  U.S. Dollar 5-Year U.S. Dollar 10-Year U.S. Dollar 30-Year Euro 7-Year
Treasuries (%) 1.87 2.85 3.59 3.35
AAA Industrial: 90 Industrial: 114 Industrial: 170  
AA Industrial: 202 Industrial: 204 Industrial: 242  
  Pfizer: 139      
AA- Novartis: 186 Novartis: 218 S. Plough: 286 S. Plough: 224
  S. Plough: 253      
A+ Industrial: 226 Industrial: 226 Industrial: 242  
A Industrial: 277 Industrial: 275 Industrial: 263 J. Deere: 309
  AT&T: 303 AT&T: AT&T:  
    Verizon: Verizon:  
A- Industrial: 286 Industrial: 284 Industrial: 273 VW: 361
BBB+ Industrial: 406 Industrial: 406 Industrial: 394 Anheuser: 343
  McKesson: 384 McKesson: 380    
BBB Industrial: 424 Industrial: 418 Industrial: 411 Imp Tobacco: 483
  Altria: 449 Altria: 571 Altria: 609  
BBB- Industrial: 520 Industrial: 509 Industrial: 506  
BB- Warner: 785      

 

Appendix F – Trend Between Operating Income and Net Income

 

Appendix G – Revenue Trend

 

Appendix H – Bond Coupon Payment and Price

 

Appendix I – Decision of Acquisition

Share This

SALE SALE

Save Up To

30%

IN ONLINE CASE STUDY

FOR FREE CASES AND PROJECTS INCLUDING EXCITING DEALS PLEASE REGISTER YOURSELF !!

Register now and save up to 30%.