Roche

Advanced Corporate Finance

Case II: Hoffman-La Roche & Co.

F. Hoffman-La Roche & Co., a.k.a. Roche, is a pharmaceutical company based in Basel, Switzerland. It was founded in 1896 by Fritz Hoffmann-La Roche with a strategy to develop new products through cooperation with academics. Roche suffered heavy losses during World War I, but thankfully recovered and grew into a company focusing primarily on making synthetic vitamins. More than half an era later Franz Humer became CEO in 1998 and chairman of the board in 2001, he changed the firms strategy to focusing on innovation-driven business by divesting the firms nonpharmaceutical divisions, increasing its R&D spending, and managing the firms core and new pipelines. He also invested in acquisitions, buying companies in the fields of biotechnology, histopathology and diagnostics. In 1990 Roche purchased a share of Genentech’s stock, a biotechnology company. To be exact, Roche owns 56 percent of Genentech’s stock. On January 29th 2009, Humer offer on the remaining 44 percent of Genentech’s stock had been open for six months. This made Humer wonder whether he should make a tender offer or not.

Which brings us to the main question of this case: Should he launch a tender offer for Genentech’s dispersed shares or not?

Before we answer this question we should start by analyzing the advantages and risks of Roche merging with Genentech. The tender offer Roche is willing to make is an acquisition in the form of a buyout, this means they will own 100 percent of the firm after the merger. Owning the entire firm has several advantages. First of all, Genentech is coming in direct competition with Roche in several U.S. markets. They have also established emerging R&D activities and production facilities outside the U.S. Genentech has also begun to encroach on Roche’s traditional territory, while Roche was developing products that would compete with existing Genentech products in the U.S. Which is why an...