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Roche's Acquisition of Genentech
1. 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 owning 100% of Genentech? What are the risks?
2. As a majority shareholder of Genentech, what responsibilities does Roche have to the minority shareholders?
3. 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 9% weighted average cost of capital in your analysis.
4. 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 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).
5. What does the analysis of comparable companies (Exhibits 12, 13, and 14) indicate about Genentech’s value within the range established in question 4?
6. How has the financial crisis affected Genentech’s value? What changes in valuation assumptions occurred between June 2008 and January 2009?
7. How did Genentech’s board and management respond to Roche’s offer of $89 per share?
8. 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?
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