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Case study: Roche's Acquisition of Genentech
1a) Why is Roche seeking to buy the 44% of Genentech it does not own?
Roche is seeking to buy 44% of shares in addition to 56% that already owns. Main purpose of purchasing rest of shares is to merge two companies and exploit the synergies.
Roche owned a majority stake in Genentech from 1990 and since then partnership was considered as one of the most successful in pharmaceutical industry.
Every year less and less invocative products entered the market, so pharmaceutical companies were forced to deliver growth through mergers and acquisitions of other pharmaceutical companies. The old model, where Roche had a majority stake in Genentech but left the company to operate on their own, did not work anymore for Roche, so they decided to do a horizontal acquisition and exploit Genentech potential. Acquisition would bring synergies, reduce risk and grow. The two companies would not be competitive anymore between each other but would increase competitive strength towards other companies. All make sense if the synergies are lower than premium paid.
1b) From Roche's point of view what are advantages of owning 100% of Genentech?
Owning 100% of Genentech would create the largest biotechnology company in the world.
(NY Times: http://www.nytimes.com/2009/03/13/business/worldbusiness/13drugs.html).
Roche would benefit from many of newly established synergies in total value of $5b. The amount is a consequence of manufacturing, development and M&D cost reduction. Government and administration costs would reduce as well.
Complete ownership would enable Roche to have a complete access to all technology, R&D projects and findings held by Genentech. Currently, the conflict of interest with Genentech’s minority shareholders prevent them the access to desired information.
Moreover 100% ownership would enable Roche to extract $9,5b currently held by Genentech in form of cash and cash equivalents. This...