Roche Holding Ag: Funding The Genentech Acquisition

The presentation given by Taylor Marsh and Janson Grussendorf consists of three parts, the
introduction with the overall overview of the presentation and it was delivered by Taylor Marsh
and second part was the analysis of the alternatives being available to finance this acquisition on
the basis of different type of bonds of different currencies with different maturities and bank
finance. Following are the key elements being overlooked as per my understanding of the case:
There were two offers given by the company to acquire the remaining shares of the
company at $89.00 per share in July 2008 but after six months, the company has revised
its offer by lowering the price per share to $86.50 due to the pressure in the equity
market. The price can be decreased to the range of $60 if the new product will show
mediocre results but if the product would be a successful, the price per share can range
from $95 to $100. There is a need to determine average price per share for this
acquisition
As per the mentioned $42 billion cash requirement for this acquisition transaction, the
company can use the bank loan but this amount of bank loan will not be provided by a
single bank. The bond issued for the different maturities, values and currencies was not
provided with the breakup of the types of the debt being issued.
It was assumed in the presentation that the bonds will be issued at par but it is important
to note that with the new issuance of the bonds or increase in the value of the debt, the
overall default risk of the business will increase and it will result in the increase in the
cost of the debt in the new issuance of the bonds. Also, the bonds with higher maturity
will have higher risk of default and will require a higher rate of return. This fact should
also be considered.
There is a direct link of the debt with the overall credit ratings of the company. The
presenter fail to explain this link of the debt with the credit rating of the company and
was not provided any explanation of the ways to maintain the overall credit rating to A
while achieving the overall financing target.
Finally, there is a need of debt mix by considering the average rate that will not harm the
credit rating of the company. This average rate is then use to determine the overall capital
structure needed in the shape of bonds, bank loan or equity finance.
Considering all of the above facts and the length of the presentation, I will give a B to this
presentation.