Roche’s Acquisition Of Genentech Harvard Case Solution & Analysis

Why Roche seeks to own 100% of Genentech?
Roche seeks to buy the 100% of the Genentech, the main purpose to own the 100% is to merge both the companies and exploit the opportunities that are available in the market.
Roche already holds the 56% of the Genentech, now it seeks remaining 44% of the Genentech.
It holds the major stakes in the company since 1991, and since then the partnership is considered as one of the most successful in the pharmaceutical industry.
In. the pharmaceutical industry, less innovative products are emerging and this result in the merger and acquisitions of the companies in the respective industry.
The strategy behind owning the 100% of the Genentech is to develop the innovative products that would lead to the higher growth.
That’s why Roche decided to make horizontal integration and achieve the Genentech potential market as it provides the benefits of successful synergies and ensures the growth and reduces risk. Along with this, it results in competitive strengths for other companies, if synergy is paid lower than the premium price.

Roche’s Acquisition Of Genentech Harvard Case Solution & Analysis

• The first benefit of owning the 100% of the Genentech’s shares is that, after the acquisition, this company will become the world’s largest biotechnology company.
• Complete ownership of Genentech will give access to the Roche of its research and development projects and its technology too.
• The ownership will give the company access to the cash amounting $9.5 billion dollars. Roche can use this cash to make the payment of a debt that was raised for the acquisition.
• The company can also create a contract allowing it to distribute Genentech’s best selling drugs.
What are Roche responsibilities to minority shareholders of Genentech?
According to the affiliate program that was signed in 1999, it clearly states the obligation to the minority shareholders. It states that in the hostile bid in which company would get 90% or more than that of Genentech’s shares and can hold for 2 months, the company was obliged to squeeze-out the existing shareholders of the company.
As mentioned in the case that most of the minority shareholders are the employees of the company, so it is the duty of Roche to explain the benefits of the merger to the employees or we can say minority shareholders and it also have to mention that how they are going to retain the employees of the company. (BALDWIN, 2011)

Assess the value of synergies Roche was expecting from the merger with Genentech, as of June 2008.
Value of Synergy
Closing price 82
Offer price 89
Shares to buy 463
value of offered price 41,207
value of closing price 37,966
Value of premium price 3,241
Value of synergy 44,448

Above table shows that the closing price of the share price of Genentech was $82 and Roche offered the price of $89.
The shares to buy was 463 and value of offered price was 41,207.
From above calculations, we can conclude that the value of the strategy is 44 billion dollars.
Cash flows according to Greenhill Assumptions
Using the discounted cash flow technique on the long-range plan from the fiscal year 2009 to 2018. WACC is mentioned in the case of 9%, annual growth is also mentioned in the case of 7% under the LRP and terminal growth rate is 2%. (BALDWIN, 2011).........

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