AD 719 Genentech Acquisition Case Study Questions

Description

Please read the article 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 Roches 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 rate 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.
Question 5: This case was dated 2008, a “long” time ago and during the first full year of the Subprime Mortgage Financial Crisis era. Please make additional as well as contrasting comments had this bond issue for funding that acquisition be done TODAY. Guidance:
- We are facing another different set of challenges — health crisis (ongoing Covid), economic (inflation, potential oil shortage), supply chain issues, geopolitical (Ukraine conflicts, Russian sanctions), as a result, financial market uncertainty and volatility.
- How how the above challenges factor into your decision when answering Questions 2 and 3?

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