Roche 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? Can Roche finance this deal?

Reasons for acquisition (100% ownership):

• The old model that had served both companies since 1990 so well was beginning to show signs of wear

• Market overlap/direct competition: Genentech was increasingly coming into direct competition with Roche in several US markets as well as markets outside the US

• Product/strategy overlap: Genentech was encroaching on Roche’s traditional territory (developing small molecular products) while Roche was preparing to launch products in US that would compete with Genentech’s products

• Existing ownership and operating model of Genentech left Roche few alternatives in addressing the increasing overlap and duplication between the two firms

• A merger and full ownership would create new opportunities (ability to collaborate on a worldwide scale vs. competing and cannibalizing products)

• Control of product licensing agreement which is to expire in 2015. By acquiring Gen, Roche would gain full control of the product pipeline vs. risking another the competitor bidding more for it and acquiring it

• Cross-fertilization of R&D: With the current ownership status and to protect minority shareholders, Roche cannot share Gen’s IP which blocked the flow of informational between researchers at the two companies and hindered product development and research. Acquiring Gen would increase information flow and enhance collaboration and innovation by sharing information in R&D

• Opportunities for cutting costs and streamlining operations due to current duplication ($750-850m savings in 5 years)

• Unfettered access to Gen’s cash ($9.5bn)

• 100% ownership would eliminate worries about conflict of interest and minority shareholders and would result in more flexibility in decision making for Roche. Currently, although Roche is the...