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

Roche’s Acquisition of Genentech Case Study Solution

The synergy value anticipated by Roche from the merger with Genentech is calculated by assessing the values of synergies per share of Genentech. The value of synergy is amounted to be $44531.34, which is calculated by using the value of offered price, closing price and premium price.

On the other hand, various valuation methods are used for comparable companies of Genentech. Under each valuation method; the range of values per share is determined. Firstly, the value per Genentech share is calculated by multiplying the average PE multiple with the earning per share (EPS). Though, different values are anticipated on the basis of the core comparable, overall industry and actual PE of Genentech;the most realistic value is supposed to be calculated by using industry mean due to its closeness to DCF share value. The realistic value of the company is $72.70 used under the median of the industry comparable, while the value estimated is $70.77 from the actual multiple of Genentech.

In addition, the enterprise value to revenue multiple is used to calculate the value per share of Genentech. There are values which are estimated on the basis of the core comparable, entire industry and actual PE Genentech. The most realistic share value is determined via industry mean $71.77 per share, which is closer to the share value calculated using DCF model.

The prices of companies have been highly affected by the global financial crises, the prices have significantly dropped including the shares of Roche and Genentech. It is noteworthy that there has been no cyclical demand for the lifesaving drugs and the financial crisis has not much affected the near term earnings of Genentech and Roche, but it is to stipulate that when the sentiments of investors have been low because of the reduced prices of stock all across the industry, the price of Genentech and Roche’ stock had also fallen.

In addition, there have been various concerns related to the financing which had to be used to purchase the stock of Genentech. It is to identify that the bridge loan is used to finance the merger and acquisition deal from the consortium of banks,but due to the financial crisis, there haven’t been enough banks which could arrange bridge loans for the purpose of financing the acquisition. Also, the lack of financing options has made Genentech unwilling to revise its valuation which in turn led Roche to make a tender offer.

Taking into account the valuation; the cost of capital of 9 percent most likely provides the fair value for the investment from Roche. It is recommended that Franz should offer a price which is higher than $89 per share ($8.8 premium price), the premium price should fall between the range of 15% and 20%. The price should be higher due to the fact that most analyst estimates are worth $85, while there are 10 analysts who have indicated more than $89. Even though, there needs to be no control premium; there should be a lack of good faith premium and lack of optimality that is more than 8.8 percent. It is recommended that the price should range between $95 and $100. Also, it is recommended that Franz should communicate to banks for the purpose of evaluating the required amount to be borrowed in order to finance the deal. Not only this, he should also communicate with the banks regarding to the issuing of bonds in Europe and the US, so that he would be able to finance the deal.........

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