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What are the business & financing risks associated with the acquisition of Genentech?

October 5, 2021
Christopher R. Teeple

Case Study 3: Roche Holding AG — Funding an Acquisition [Genentech] with Cross-Border Debt
This is your chance to play “bond underwriter” giving investment banking advice to this acquisition. We want to see your thinking process (please explain how/why to support your assessment); we will accept a range of answers based on your assessment of the perceived risk on this acquisition.
Case Guidance: what to submit. Please read the Case and answer the following questions:
Question 1: What are the business & financing risks associated with the acquisition of Genentech? Is this a good time to do the deal (and why)?
Guidance: Background question about the acquisition regarding the combined bigger entity — better/bigger prospects/revenues/earnings, what about the risks involved?
Remember, you are planning to pay for this acquisition with a bond issue. This should help you set up and explain Question 2’s impacted credit rating issue.
Question 2: Do you believe that the deal and bond issuance will have an impact on Roche’s credit rating (and why)?
Question 3: What would be your recommendation for the coupon rate (or spreads) for the Roche 5-year, 10-year and 30-year US$ bonds?
Question 4: What would be your recommendation for the coupon on the 7-year Euro bond? Guidance for Question 3 and 4 — pricing this bond issue:
If US $-denominated bond, what coupon rate?
If Euro-denominated bond, what coupon rate?
PS: use US and Euro Treasury benchmark yields to price them based on your explained credit rating from Question 1.
No template for this assignment. Submit your responses in Word document format.

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