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ROCHE HOLDING AG ;Funding the Genentech Acquisition Case Solution & Answer

ROCHE HOLDING AG; Funding the Genentech Acquisition Case Study Solution
Executive Summary  

Roche Group is the global pharmaceutical company, which was established by Fritz Hoffman-La Roche in 1896. The primary products of the company include: vitamins, antiseptics, and sleeping agents. Later on, the company expanded its business operations in 35 countries and acquired the majority stake in Genentech for USD 2.1 billion. The acquisition of Genentech provided strong foothold to Roche in the emerging biologic markets and helped it in having a strong reputation in the US markets. With strong focus on expanding the business and series of acquisition; Roche became one of the leading and valuable pharmaceuticals all around the globe.

The global financial crises greatly affected the international financial market and the financial performance of Roche. Given the global financial crises; the company is pondering to acquire Genentech, due to which the company has reduced the bid price from 89 dollar per share to 86.5 dollar per share of Genentech, because the global crises affected the equity market and prices of stock of Genetech. Roche is faced with the dilemma in deciding whether it should offer a record 42-billion-dollar bond or not. Given the pending acquisition of Genentech – a US based biotechnology leader, the management of Roche planned to sell 32 billion dollars in bonds at various maturities from one year to thirty year in British pound, Euro & US dollar. The issuance of bonds in more than one currency would help in reducing the risk of exchange rate.

In order to acquire Gene tech; the company’s management is considering issuing $32 billion with the help of the issuance of bonds, and these bonds will be publicly traded. As the bond will be publicly traded therefore, selecting the appropriate price of the bonds is also a challenging task because the equity market is uncertain and mostly investors had invested in the government T-Bills. As the cost of debt is increasing; it will also increase the debt ratio for the company, lasting  heavy impacts over EBITDA / Coverage ratio of the company, which would start to decrease further. It has been also identified that the coupon rate at the maturity of 10 year is lower than the coupon rate at the maturity of 30 year, which will help to decide the company’s coupon rate for the 10-year bond and 30-year bond, which will be 7.3 percent and 8.6 percent, respectively…………..

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