Roche's Acquisition of Genetech

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On July 21 2008 the pharmaceutical company Roche brought out a bid for Genentech at $89. Why would Roche want to acquire full ownership of Genentech? At the moment there are a lot of protective measures in place for minority shareholders, these keep Roche from taking full advantage of its ownership of Genentech. For example: Roche cannot use Genentech’s intellectual property, Roche also cannot use the cashflows available at Genentech as it wishes. In other words the ownership structure doesn’t enable Roche to fully enjoy the benefits that Genentech can provide the company. Experts from Roche have done research concerning the cost reduction that the two companies could achieve in a full merger. According to their report savings of $750 million to $850 million can be achieved realizable over five years. Another finding of their research is that 40% of the cost reductions can be achieved by Roche on its own. The cost reductions will come from combining both operations, meaning that the production of medicines will become a shared operation. This will reduce costs because combining the two will lead to economies of scale. Not only in operations are there savings to be made. At the moment the two companies are growing more and more similar, this means that they are also doing research in the same fields. If they share their findings and work closer together, some work will become redundant, if you assign the people that become redundant to other functions or fire them you can make the research more efficient. Not only are their benefits inside the companies. They can also better coordinate their product development and placement, leading to less competition and an increase in market share for both in their particular fields. Genentech has began to generate a great amounts of cash flows since 2007, the company is starting to get quite a reserve of cash. Instead of
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