Advanced Corporate Finance
Final Case: Roche
Reasons for Roche’s 100% ownership of Genentech
Since Roche and Genentech both operate in the pharmaceutical industry, but still have their own specialty, they can benefit from a partnership. Roche owns a majority stake in Genentech since 1990 and since 2007, it owns 56% of Genentech. Genentech was founded in 1976, their focus lies on biotechnology in which they are the second largest firm of the world. Genentech had become an important part of Roche’s business representing 24% of Roche’s pharmaceutical product sales in 2008. In July 2008, Roche made public that they’d want to acquire the remaining 44% of Genentech. For Roche this acquisition beholds several benefits, but of course also several risks. These benefits and risk are stated below.
First of all since Genentech, in terms of revenue, is the second largest firm in biotechnology in 2007, a full acquisition will strengthen the market positions of both companies. Genentech experiences an expanding growth in sales (see exhibit B), so both companies notice more and more direct competition of each other in several U.S. markets. A merger of Roche and Genentech would take away the direct competition and create new opportunities and strengths which would give them the opportunity to excessively work together on a world wide scale. Secondly, the acquisition beholds a great cost reduction. Roche managers believed there was increasing duplication of effort and facilities at the two companies and, thus, opportunities to create value by cutting costs and streamlining operations. They identified that annual savings realizable over five years would be between $750 million and $850 million, most of which would be in manufacturing, General &Administrative and commercial operations. Another benefit of Roche owning 100%, a merge of the two companies would give Roche access to all the intelligence of Genentech. The concerns about property rights...
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