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9-210-040

REV: SEPTEMBER 28, 2011

CARLISS Y. BALDWIN BO BECKER VINCENT DESSAIN

Roche’s Acquisition of Genentech

Late on the wintry afternoon of January 29, 2009, Franz Humer, chairman of Roche, looked out on the spires of Basel and the fast-flowing Rhine and thought about Genentech, Roche’s biotech subsidiary in California. Roche’s offer to acquire the remaining 44% of Genentech’s stock that Roche did not own had been open for six months, with little progress toward a deal. Humer wondered if it made sense to make a tender offer for the shares. Since 1990, Roche, a global pharmaceutical company headquartered in Switzerland, had owned a majority stake in Genentech, a successful pioneer in biotechnology. Although technically a subsidiary of Roche, San Francisco–based Genentech operated with a great deal of latitude and had a fiercely independent culture. Many in the industry viewed the arrangement as one of the most successful partnerships ever. On Monday, July 21, 2008, in a surprise move, Roche had publicly offered to pay $89 per share in cash for all the shares of Genentech it did not currently own. This offer represented an 8.8% premium over the previous Friday’s close and valued Genentech at approximately $100 billion. (Exhibit 1 presents a time line of major events.) To protect Genentech’s minority shareholders, Genentech’s board of directors delegated responsibility for appraising the offer to a special committee made up of Genentech’s three independent directors. The committee quickly rejected Roche’s offer as “inadequate,” but then waited until November to put forward its own view of Genentech’s value: $112 to $115 per share. Meanwhile, the global financial system entered a period of severe crisis, and the share prices of most companies (including Genentech and Roche) declined significantly. Given these events and its own valuation of Genentech, Roche’s management team believed the special committee’s valuation was unreasonable. In January 2009, the...