Roche’s Acquisition of Genentech Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Roche’s Acquisition of Genentech Case Solution

Synergy Valuation

The value of synergies per share of Genentech is used to measure the value of synergies predicted by Roche from the merger with Genentech. The value of synergy is $44531.34, which is determined by multiplying the value of the offered price (41207), the closing price (37883), and the premium price(3324). The costs are used to measure the free cash flows, as well as the share valuation, which is $68.22 in this case.

DCF Valuation

The value of synergy presented by the Roche after the merger with the Genentech, wascalculated by analyzing the values of per share synergy of Genentech. The value of the Synergy was amounted at $44531.34, which was calculated after taking the 3 values mainly; offered price value, closing price and premium price.The Exhibit 9 is taken which indicates that the expenses are calculated to find the free cash flows, the value of share is also figured which shows the amount of $68.22.

Comparable Analysis

Genentech comparative firms are valued by a variety of methods. Each valuation approach determines the range of values per share. To begin, multiply the average PE multiple by the earnings per share to arrive at the valuation per Genentech share (EPS). Since different values are anticipated depending on the main comparable, overall sector, and Genentech real PE, the more realistic value is meant to becalculated using industry mean since it is nearest to DCF share value. The company realistic valuation is $72.70 based on the industry standard, while the approximate value is $70.77 based on multiple. EPS of Genentech is measured by multiplying EV (Enterprise Value) to sales multiple. Figures based on the central comparable, the whole market, and the real PE Genentech. The most acceptable market valuation is measured by the business average of $71.77 per share, which is closer to the DCF model share value.

Financial Crisis and Roche’s Bid

Due to global financial crises company prices were affected, the share prices of Roche and Genentech were adversely affected. The demand for life saving drugs was decreasing and the financial crisis was affecting the earning of Genentech. In order to specify the industry process was decreasing which was affecting the Genentech stock price as well.

Along with that there were management concerns to gather finances to buy the stock of Genentech. As stated earlier that the Acquisition deal was done on the basis of borrowing from another source that was consortium of banks, But due to financial crises in the country bank could not arrange this much amount to land to Roche. Unviability of the resources made Genentech to refuse from revaluation of its company. Which presented other options for Roche discussed below:

Total base value $14.118.
Budgeted period 2024.
Growth rate 6.9%

Recommendations

Considering the company’s valuation, the weighted average cost of capital of 9% gives a fair value for the Roche investment. According to the analysis, it is recommended that Franz should offer the price at greater than $89 per share (including $8.8 premium), while the price for premium must be kept in the range of 15%-20%. As the estimates of different analysts are of worth $85 while there are some analysts with an estimated price of more than $89, so the price should be kept higher. A lack related to good faith premium and optimal must be maintained, however, the control premium should be offered, which is approximately 8.8%......................

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Roche’s Acquisition of Genentech Harvard Case Solution & Analysis