Roche Essay

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Case Study 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? Roche already had 56% of shares of Genentech and now it seeks to acquire rest of the 44% shares so as to get the benefits of synergies. The pharmaceutical companies have been unable to introduce new products lately, and their only way to remain profitable is by mergers and acquisitions. Roche also used this method. Acquisition will help the firm compete in the market and thus will help it grow. Advantages of owning 100% of Genentech’s shares: • The merger will lead to formation of the world’s largest biotechnology company. • Value of total benefit from synergies will be $5billion. This will be a result of M&D, manufacturing, development and administrative costs reduction. • Complete ownership will give the company complete access to technology and R&D projects. • It will also give the company access to its cash amounting to $9.5billion, which can also be used to make payment for debt raised for acquisition. • The company can also create a contract allowing it to distribute Genentech’s best selling drugs. Risks of owning 100% of Genentech’s shares: • The acquired company’s minority shareholders are mostly its employees. The company’s culture is like a family environment where all the employees work in cohesion. Acquisition may destroy this culture. The culture of Genentech will have to be matched and combined with the culture of Roche. This may create problems for the human resources which may even lead to high employee turnover. • There is a chance that the company pays higher than the premium required for the benefits of synergies. Such a situation may lead to drop in the prices of Roche’s shares. • For the deal, Roche has to borrow around $30 billion. The ongoing

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