Case ID: 210040
Solution ID: 15789
Words: 2237
Price $ 75

Roches Acquisition of Genentech Case Solution

Case Solution

Franz Humer, CEO from the Roche Group, have to research whether or not to mount a hostile tender offer for that openly-possessed shares of Roche's biotechnology subsidiary, Genentech. The case provides possibilities to evaluate Roche's strategy regarding Genentech, the benefits and drawbacks of merging the 2 companies with various cultures, the need for Genentech, and also the tactics of the hostile tender offer.

Excel Calculations

Historical Finnacial Statements Data          
Income Statement Data               
Cash Flow Statement Data               

Cash Flow Forecast
Genentech’s Actual and Forecast Free Cash Flow, 2006-2009 (in millions of US$)               

Expected Synergies
WACC
Long Term Growth rate
Current Share Holdings
Shares to buy
Terminal Value
Discounted Value
Total Discounted Value
Discounted Value per share

DCF
Assumptions            
Equity Valuation   
Scenario Analysis of per Share Price                   

PE Analysis
Trailing P/E Multiple, Relevant Value per Share, Forward P/E multiple, Relevant Value per Share

EBDITA Anaysis
Multiple       
Enterprise Value        

DCF NFM
Assumptions            
Equity Valuation   
Scenario Analysis of per Share Price  

Questions Covered

Why is Roche seeking to acquire the 44% of Genentech it does not own? From Roche?s point of view, what are the advantages of owing 100% of Genentech? What are the risks?

As of June 2008, what is the value of the synergies Roche anticipates from a merger with Genentech? Assess the value of synergies per share of Genentech. Please use a 9% weighted average cost of capital in your analysis.

Based on DCF valuation techniques, what range of values is reasonable for Genentech as a stand-alone company in June 2008? Please exclude synergies from your valuation and use a a 9% weighted average cost of capital. You can assume that as of the end of June 2008, Genentech held approximately $7 billion in cash, which included investments and securities that were not needed in its daily operations. (Note: Exhibit 10 is a good starting point for this analysis.)

What does the analysis of comparable companies (Exhibit 12, 13, and 14) indicate about Genentech?s value within the range established in question 3?

How has the financial crisis affected Genentech?s value? What changes in valuation assumptions occurred between June 2008 and January 2009?

What should Franz Humer do? Specifically, should he launch a tender offer for Genentech?s shares? What are the risks of this move? What price should he offer? Should he be prepared to go higher? How much new financing will Roche need to complete the tender offer?

How did Genentech’s board and management respond to Roche’s offer of $89 per share?