roche holding ag: funding the genentech acquisition · roche was clearly one of the leading...

UV5461 Rev. Oct. 13, 2016

This case, based on publicly available data, was prepared by Brett Durick (MBA ’11), Drew Chambers (MBA ’11), and Michael J. Schill, Robert F. Vandell Research Associate Professor of Business Administration. This case is dedicated to Courtney Turner Chambers, in recognition of the sacrifice and contribution of all Darden partners. Copyright 2011 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.

Roche Holding AG: Funding the Genentech Acquisition

We are confident that we will have the financing available when the money is needed…The plan is to use as financing partly our own funds and then obviously bonds and then commercial paper and traditional bank financing. We will start by going to the bond market first.1

—Roche Chairman Franz Hume

In July 2008, Swiss pharmaceutical company Roche Holding AG (Roche) made an offer to acquire all remaining outstanding shares of U.S. biotechnology leader Genentech for (U.S. dollars) USD89.00 per share in cash. Six months later, with equity markets down 35%, Roche announced its recommitment to the deal with a discounted offer of USD86.50 in cash per share of Genentech stock.

To pay for the deal, Roche needed a massive USD42 billion in cash. To meet the need, management planned to sell USD32 billion in bonds at various maturities from 1 year to 30 years and in three different currencies (U.S. dollar, euro, and British pound). The sale would begin with the dollar-denominated offering and followed up soon after with rounds of offerings in the other currencies.

In mid-February 2009, Roche was ready to move forward with what was anticipated to be the largest bond offering in history. With considerable ongoing turmoil in world financial markets and substantial uncertainty surrounding the willingness of Genentech minority shareholders to sell their shares for the reduced offer of USD86.50, Roche’s financing strategy was certainly bold.

Roche

In 1894, Swiss banker Fritz Hoffmann-La Roche, 26, joined Max Carl Traub to take over a small factory on Basel’s Grenzacherstrasse from druggists Bohny, Hollinger & Co. Following a difficult first two years, Hoffmann-La Roche bought out his partner and entered F. Hoffmann-La Roche & Co. in the commercial register.

1 Sam Cage, “Roche Goes Hostile, Cuts Genentech Bid to $42 Billion,” Reuters, January 30, 2009.

This document is authorized for use only in Ioannis Floros's Corporate Finance 2019 at University of Wisconsin - Milwaukee from Dec 2018 to Jun 2019.

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In the early years, the company’s primary products included sleeping agents, antiseptics, and vitamins; by the late 1930s, the company had already expanded to 35 countries, an expansion that continued in the decades following the Second World War. In 1990, the company, by then known as Roche, acquired a majority stake in Genentech, a South San Francisco biotechnology company, for USD2.1 billion. Genentech’s research focused primarily on developing products based on gene splicing or recombinant DNA to treat diseases such as cancer and AIDS. The acquisition gave Roche a strong foothold in the emerging biologics market as well as stronger presence in the U.S. market.

Since the 1990s, Roche had maintained focus on its two primary business units, pharmaceuticals and medical diagnostics; in 2004, Roche sold its over-the-counter consumer health business to Bayer AG for nearly USD3 billion. In 2008, Roche expanded its diagnostics business with the acquisition of Ventana Medical Systems for USD3.4 billion.

By the end of 2008, Roche’s total revenue was just shy of (Swiss francs) CHF50 billion. The pharmaceutical division contributed 70% of the total Roche revenue and over 90% of the operating profit. Roche was clearly one of the leading pharmaceuticals in the world. Exhibit 1 provides a revenue breakdown of Roche’s 2008 revenue by geography and therapeutic area, as well as a detailed overview of Roche’s top selling pharmaceutical products. Roche and Genentech’s financial statements are detailed in Exhibit 2 and 3, respectively, and the stock performance of the two companies is shown in Exhibit 4.

Market Conditions

The past 18 months had been historic for global financial markets, with dramatic declines in equity and credit markets. Since October 2007, world equity market prices had declined over 45%. Large numbers of commercial and investment banks had failed. The global labor market was shedding jobs, resulting in sharp increases in unemployment rates. Broad economic activity was also affected, with large declines in overall economic activity.

In response to what some feared would become the next Great Depression, world governments made massive investments in financial and industrial institutions. In an effort to stimulate liquidity, central banks had lowered interest rates. The market uncertainty was accompanied by a massive “flight to quality” as global investors moved capital to government securities (particularly U.S. Treasuries), thereby driving government yields to historic lows. Exhibit 5 shows the prevailing yield curve in U.S. dollars, euros, and British pounds. With benchmark yields declining but overall borrowing rates rising, the credit spreads (the difference between corporate yields and benchmark yields) were expanding to historic levels. Exhibit 6 contains the prevailing credit spreads over benchmark yields for U.S. industrial corporate bonds based on bond ratings from bond-rating agency Standard and Poor’s. Exhibit 7 plots historical trends in yields of bonds by various credit ratings over the past two years. Exhibit 8 provides a definitional overview of Standard and Poor’s credit ratings. Roche’s current credit rating with Standard and Poor’s was AA−, and with Moody’s was Aa1. Exhibit 9 details median values for various financial ratios for companies rated within a particular category for 2007 and 2008.

Despite the uncertainty in the credit markets, corporate transactions were reawakening in the pharmaceutical industry. Pfizer had recently agreed to acquire Wyeth for USD68 billion. In the deal, five banks had agreed to lend Pfizer USD22.5 billion to pay for the deal, and Pfizer was funding the remaining USD45.5 billion through issuance of a combination of cash and stock.


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The Bond Offering Process

The issuance of publicly traded bonds, in addition to the pricing and marketing of the deal, required the satisfaction of certain legal requirements. Because of the complexity and importance of these two processes, corporations typically hired investment bankers to provide assistance. Given the size of the deal, Roche hired three banks as joint lead managers for the U.S. dollar deal (Banc of America Securities, Citigroup Global Markets, and JPMorgan) and four bankers for the euro and pound sterling deals (Barclays Capital, BNP Paribas, Deutsche Bank, and Banco Santander).

Because Roche’s bonds would be publicly traded, it had to file with the appropriate regulatory agencies in the countries where the bonds would be issued. Simultaneous with the drafting of the documentation by legal teams, the underwriting banks’ debt capital markets and syndication desks began the marketing process. The initial phase of this process was the “road show.” During the road show, management teams for Roche and the banks held initial meetings with investors from all over the world. The Roche management team expected to meet with investors in many of the major investment centers in the United States and Europe.

Given the global nature of Roche’s business, the banks determined that a mix of bonds at different maturities and in different currencies was the best option. By matching differing maturities and currencies to the company’s operating cash flows in those currencies, Roche was able to reduce exchange rate risk. Exhibit 10 provides an overview of the different currency and maturity tranches planned in the offering. The final amounts raised from each offering, along with the coupon rate, were not yet determined because pricing was expected to be highly influenced by investor demand. To ensure that the bond offering raised the targeted proceeds, the coupon rate was set to approximate the anticipated yield, such that the bond traded at par. Following market conventions, the U.S. dollar bonds would pay interest semiannually, and the euro and sterling issues would pay interest annually.

The coupon payments of the shorter durations were to be floating, and the interest to be paid was equivalent to the short-term interbank interest rate (LIBOR) plus a credit spread. The longer durations were to have fixed coupon payments for the duration of the bond. Investors typically referenced the “price” of bonds as the spread over the applicable risk-free rate. The risk-free rate was commonly established as the respective government borrowing rate and was referred to as the benchmark, sovereign, or Treasury rate. The logic of the credit spread was that bonds were riskier than the benchmark bonds, so to entice investors, the issuer had to offer a price over the risk-free rate.

During the road show, banks received feedback from investors on the demand for each tranche. Determining the final size and pricing of each issue was an iterative process between the investors, banks, and issuer. In the case of Roche, if investors showed strong demand for the four-year euro tranche, Roche could decide to either issue more at that price (thus reducing the amount of another tranche) or lower the coupon and pay a lower interest rate on the four-year euro issue. The banks’ process of determining demand and receiving orders for each issue was known as book-building. Bond prices were set based on prevailing yields of bond issues by similar companies. Exhibit 11 and 12 provide a sample of prevailing prices and terms of company bonds traded in the market, in addition to various equity market and accounting data.

The Genentech Deal

On July 21, 2008, Roche publicly announced an offer to acquire the 44.1% of Genentech’s outstanding shares that it did not already own. The offer price of USD89.00 represented a 19% premium over the previous one-month share prices for Genentech. Roche management believed that economies justified the premium with an estimate that, following the transaction, the combined entity could realize USD750 million


OWNER

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to USD850 million in operational efficiencies. Following the offer, Genentech’s stock price shot up beyond the USD89.00 offer price with the anticipation that Roche would increase its offer.

On August 13, 2008, a special committee of Genentech’s board of directors (those without direct ties to Roche) responded to Roche’s offer. The committee stated that the offer “substantially undervalues the company.” Without the support of Genentech’s board of directors, Roche needed either to negotiate with the board or take the offer directly to shareholders with what was known as a tender offer. In that case, shareholders would receive a take-it-or-leave-it offer. If sufficient shareholders “tendered” their shares, the deal would go through regardless of the support of the board.

Over the next six months, capital markets fell into disarray. As credit markets deteriorated, Genentech shareholders realized that Roche might not be able to finance an increased bid for the company, and the share price continued to decline through the end of the year. Contemporaneously with the deal, Genentech awaited the announcement of the clinical trial results for several of its next generation of potential drugs, including its promising cancer drug Avastin.

On January 30, 2009, Roche announced its intention to launch a tender offer for the remaining shares at a reduced price of USD86.50. The revised offer was contingent on Roche’s ability to obtain sufficient financing to purchase the shares. The announcement was accompanied by a 4% price drop of Genentech’s share price to USD80.82. Bill Tanner, analyst at Leerink Swann, warned Genentech shareholders that the stock was overvalued and that if upcoming Genentech drug trials showed mediocre results then the stock would fall into the USD60 range. He encouraged shareholders to take the sure USD86.50 offer claiming that “DNA’s [the stock ticker symbol for Genentech] best days may be over.”2

Jason Napadano, analyst at Zach’s Investment Research, claimed that Roche was trying “to pull the wool over the eyes of Genentech shareholders.” He continued, “Roche is trying to get this deal done before the adjuvant colon cancer data comes out and Genentech shareholders are well aware of that. I don’t know why they would tender their shares for [USD]86.50, which is only 10% above today’s price, when they can get closer to $95 to $100 a share if they wait.”3

The Financing Proposal

Unlike Pfizer in its acquisition of Wyeth, Roche could not issue equity to Genentech shareholders. Roche was controlled by the remnants of its founder in the Oeri, Hoffman, and Sacher families. The company maintained two classes of shares, bearer and Genussscheine (profit-participation) shares. Both share classes had equal economic rights (i.e., same dividends, etc.) and traded on the Swiss Stock Exchange, but the bearer shares were the only shares with voting rights, and the founding family controlled just over 50% of the bearer shares. This dual-share structure existed before modern shareholder rights legislation in Switzerland and was grandfathered in. In the event Roche were to issue equity to Genentech shareholders, this dual-class share structure would have to be revisited, and the family might lose control. Given this ownership structure, Roche was forced to finance the deal entirely of debt and current cash on hand.

When Roche originally announced the transaction, the company had intended to finance the acquisition with a combination of bonds and loans from a variety of commercial banks. The collapse of the financial

2 Bob O’Brien, “Analysts Debate Strategy Behind Sourer Offer,” Barron’s, January 30, 2009. 3 O’Brien.


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markets caused many of the commercial banks to demand a much higher interest rate on the loans than originally anticipated by Roche. As a result of the change in market conditions, Roche was limited to the bond market for the majority of its financing. Despite the magnitude of the debt-financing need, the investment banks assisting in the deal expected that Roche’s cash flow was stable enough to manage the additional level of debt.

To ensure that Roche raised the necessary capital, it was important to correctly anticipate the required yield on each bond and set the coupon rate at the rate that would price the bond at par. This was done by simply setting the coupon rate equal to the anticipated yield. With such a substantial amount of money riding on the deal, it was critical that Roche correctly set the price, despite the immense uncertainty in capital markets.


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Exhibit 1


2008 Revenue Breakdown (sales in millions of Swiss francs)1

Data source: Roche 2008 annual report.

1 CEMAI: Central and Eastern Europe, the Middle East, Africa, Central Asia, and the Indian Subcontinent. This acronym appears to be unique to

Roche.

By Geography Share Product (Indication) Sales

North America 41% MabThera/Rituxin (lymphoma, leukemia, rheumatoid arthritis)

5,923

Western Europe 29% Avastin (colorectal, breast, lung, and kidney cancer) 5,207

CEMAI1 9% Herceptin (breast cancer) 5,092

Japan 9% CellCept (transplantation) 2,099

Latin America 6% NeoRecormon/Epogin (anemia) 1,774

Asia-Pacific 5% Peasys (hepatitis) 1,635

Others 1% Tarceva (lung cancer, pancreatic cancer) 1,215

Lucentis (macular degeneration) 960

By Therapeutic Category Share Tamiflu (influenza) 609

Oncology 55% Xolair (asthma) 560

Inflammation and autoimmune diseases, transplantation

9% Valcyte/Cymevene (herpes) 553

Xenical (weight loss and control) 502

Central nervous system 3% Pulmozyme (cystic fibrosis) 496

Respiratory 3% Nutropin (growth hormone deficiency) 413

Metabolic diseases, bone diseases 8% Neutrogin (neutropenia associated with chemotherapy) 404

Infectious diseases 1% Rocephin (bacterial infections) 344

Cardiovascular diseases 3% Activase, TNKase (heart attack) 342

Virology 9% Madopar (Parkinson’s disease) 311

Renal anemia 4%

Ophthalmology 3%

Others 2%


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Exhibit 2


Roche Financial Statements, Financial Years Ended December 31 (in millions of Swiss francs)

Income statement 2004 2005 2006 2007 2008

Revenue 31,092 36,958 43,432 48,376 47,904

COGS 7,718 9,270 13,096 13,738 13,605

Gross margin 23,374 27,688 30,336 34,638 34,299

Operating expense

Sales and marketing 10,423 11,816 11,588 11,576 11,317

Research and development 5,154 5,672 7,286 8,327 8,720

Other operating 1,572 1,011 0 0 0

Operating income 6,225 9,189 11,462 14,735 14,262

Net interest expense (income) 311 (742) (443) (791) (488)

Other non-operating expenses (income) (677) 769 (682) 222 589

Income tax 1,865 2,284 3,436 3,867 3,317

Minority interest −457 −943 −1,291 −1,676 −1,875

Net income 6,606 5,923 7,880 9,761 8,969

Balance sheet

Total cash and ST investments 12,999 20,885 24,996 24,802 21,438

Total other current assets 16,680 14,741 15,899 18,032 17,166

Net PP&E 12,408 15,097 16,417 17,832 18,190

Other noncurrent assets 16,359 18,472 17,102 17,699 19,295

Total assets 58,446 69,195 74,414 78,365 76,089

Total current liabilities 10,134 9,492 12,692 14,454 12,104

Long-term debt 7,077 9,322 6,191 3,831 2,971

Unearned revenue 0 183 163 243 174

Other noncurrent liabilities 13,237 16,864 15,924 14,354 16,361

Total liabilities 30,448 35,861 34,970 32,882 31,610

Common stock 160 160 160 160 160

Retained earnings 35,960 38,624 44,251 50,922 52,081

Treasury stock −4,326 −3,485 −2,102 −1,017 −

Comprehensive inc. and other −3,796 −1,965 −2,865 −4,582 −7,762

Total shareholder equity 27,998 33,334 39,444 45,483 44,479

Total liabilities and SE 58,446 69,195 74,414 78,365 76,089

Data source: Capital IQ.


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Exhibit 3


Genentech Financial Statements (in millions of U.S. dollars)

Income statement 2004 2005 2006 2007 2008

Revenue 4,621 6,633 9,284 11,724 13,418

COGS 805 1,155 1,366 1,767 1,971

Gross margin 3,816 5,478 7,918 9,957 11,447

Operating expense

Sales and marketing 1,088 1,435 2,014 2,256 2,405

Research and development 816 1,118 1,588 2,250 2,573

Other operating 739 946 1,110 1,212 1,400

Operating income 1,173 1,979 3,206 4,239 5,069

Net interest expense (income) (83) (93) (156) (224) (75)

Other non-operating expenses (income) 36 59 (35) 38 (286)

Income tax 435 734 1,290 1,657 2,004

Minority interest 0 0 0 0 0

Net income 785 1,279 2,107 2,768 3,426

Balance sheet

Total cash and ST investments 1,665 2,365 2,493 3,975 6,198

Total other current assets 1,760 2,021 3,211 4,778 3,875

Net PP&E 2,091 3,349 4,173 4,986 5,404

Other noncurrent assets 3,887 4,412 4,965 5,201 6,310

Total assets 9,403 12,147 14,842 18,940 21,787

Total current liabilities 1,238 1,660 2,010 3,918 3,095

Long-term debt 412 2,083 2,204 2,402 2,329

Unearned revenue 268 220 199 418 444

Other noncurrent liabilities 703 714 951 297 248

Total liabilities 2,621 4,677 5,364 7,035 6,116

Common stock 21 21 21 21 21

Additional paid in capital 8,003 9,263 10,091 10,695 12,044

Retained earnings (1,533) (2,067) (838) 992 3,482

Comprehensive inc. and other 291 253 204 197 124

Total shareholder equity 6,782 7,470 9,478 11,905 15,671

Total liabilities and SE 9,403 12,147 14,842 18,940 21,787



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Exhibit 4


Stock Price Performance of Roche and Genentech, February 2007 to February 2009 (in Swiss francs and U.S. dollars, respectively)1


1 Correspondence of values between axes is approximate, based on exchange rates on February 28, 2007. The average rate for the period was

USD1.13/CHF1.00.


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Exhibit 5


Annual Yield Rate to Maturity (U.S. Dollar, Euro, British Pound), February 2009 (in percent)

U.S. Treasuries Euro Benchmark1 UK Sovereign 6-mo 0.34 n/a 0.48

1 0.48 2.09 0.56 2 0.93 2.26 0.88 3 1.35 2.55 1.39 4 1.50 2.81 1.85 5 1.87 3.01 2.29 6 n/a 3.19 2.79 7 2.18 3.35 3.06 8 2.67 3.48 3.25 9 2.80 3.60 3.50

10 2.85 3.70 3.66 12 n/a 3.87 n/a 15 3.45 3.99 4.13 20 3.91 3.99 4.29 25 3.90 3.83 4.34 30 3.59 3.69 4.35

Data source: Bloomberg.

1 The euro benchmark is obtained from the midrate of the euro versus the EURIBOR mid-interest rate swap.


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Exhibit 6


U.S. Yield Spreads of U.S. Industrial Corporate Bonds over Comparable Maturity of U.S. Treasuries for S&P’s Bond-Rating Categories, February 2009

(in basis points)

Years to maturity

Rating 1 2 3 5 7 10 30

AAA 90 82 77 90 136 114 170

AA 210 201 198 202 224 204 242

A+ 211 201 217 226 243 226 242

A 279 261 278 277 290 275 263

A− 289 271 287 286 303 284 273

BBB+ 406 387 409 406 412 406 394

BBB 417 398 422 424 435 418 411

BBB− 493 497 510 520 527 509 506

Data source: Bloomberg.


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Exhibit 7


History of U.S. Bond Yields for 30-Year Maturities, February 2006 to February 2009 (in percent)

Data source: Datastream, Mergent Bond Record.


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Exhibit 8


S&P Credit Ratings Overview

S&P’s global bond-rating scale provides a benchmark for evaluating the relative credit risk of issuers and issues worldwide.

Investment grade

AAA Extremely strong capacity to meet financial commitments. Highest rating

AA Very strong capacity to meet financial commitments A Strong capacity to meet financial commitments, but somewhat

susceptible to adverse economic conditions and changes in circumstances

BBB Adequate capacity to meet financial commitments, but more subject to adverse economic conditions

Speculative grade

BB Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial, and economic conditions

B More vulnerable to adverse business, financial, and economic conditions but currently has the capacity to meet financial commitments

CCC Currently vulnerable and dependent on favorable business, financial, and economic conditions to meet financial commitments

CC Currently highly vulnerable

C A bankruptcy petition has been filed or similar action taken, but payments of financial commitments are continued

D Payment default on financial commitments

Ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus (−) sign to show relative standing within the major rating categories. The Moody’s bond-rating service had a similar rating scale but denoted an S&P “BBB” rating, for example, as “Baa.” Data source: Guide to Credit Rating Essentials, Standard and Poor’s, http://www2.standardandpoors.com/spf/pdf /fixedincome/SP_CreditRatingsGuide.pdf (accessed February 16, 2011).


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Exhibit 9


Median Financial Ratio Values for all U.S. Rated Industrial Companies, 2007 and 2008

Number of companies

Debt/ (Debt + BookEq)

EBITDA/Int. Expense

EBIT/ Int. Expense

Debt/ EBITDA

2007

AAA 26 0.51 95.47 74.06 2.26 AA 189 0.30 35.92 31.05 0.85

A 539 0.41 12.45 9.86 1.63 BBB 924 0.50 8.20 6.11 2.66

BB 470 0.52 6.59 4.63 2.82 B 335 0.71 3.71 2.30 4.66

2008

AAA 18 0.51 113.97 81.62 3.25 AA 182 0.26 43.97 31.21 0.81

A 559 0.43 12.78 9.89 1.81 BBB 924 0.50 8.23 6.42 2.47

BB 417 0.52 6.40 4.51 2.82 B 321 0.75 3.41 2.10 4.92

Data source: Case writer analysis of Compustat data.


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Exhibit 10


Plan for Currency and Maturity of Roche Bond Offering Tranches1

U.S. dollar-denominated

Maturity Amount (in billions of U.S. dollars) Coupon

1 year 3.00 Floating rate 2 years 1.25 Floating rate 3 years 2.50 Fixed rate 5 years 2.75 Fixed rate 10 years 4.50 Fixed rate 30 years 2.50 Fixed rate

Euro-denominated Maturity Amount (in billions of euros) Coupon

1 year 1.50 Floating rate 4 years 5.25 Fixed rate 7 years 2.75 Fixed rate 12 years 1.75 Fixed rate

Sterling-denominated

Maturity Amount (in billions of British pounds) Coupon

6 years 1.25 Fixed rate

Data source: Company documents.

1 Prevailing exchange rates at the time were CHF1.67/GBP1.00, CHF1.18/USD1.00, and CHF1.48/EUR1.00.


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Exhibit 11


Prevailing Prices of Sample of Recently Rated Corporate Bonds (Mid-February 2009)

Data source: Case writer analysis using Bloomberg data.

U.S. dollar-denominatedAltria 2/3/2009 2/6/2014 5 BBB 525 7.75 105.835Altria 2/3/2009 2/6/2019 10 BBB 2,200 9.25 104.612Altria 2/3/2009 2/6/2039 30 BBB 1,500 10.2 105.079AT&T 1/29/2009 2/15/2014 5 A 1,000 4.85 99.790AT&T 1/29/2009 2/15/2019 10 A 2,250 5.8 98.877AT&T 1/29/2009 2/15/2039 30 A 2,250 6.55 96.626Johnson & Johnson 6/23/2008 7/15/2038 29 AAA 700 5.85 111.000McKesson 2/9/2009 2/15/2014 5 BBB+ 350 6.5 103.372McKesson 2/9/2009 2/15/2019 10 BBB+ 350 7.5 106.156Novartis 2/10/2009 2/10/2014 5 AA− 2,000 4.125 101.778Novartis 2/10/2009 2/10/2019 10 AA− 3,000 5.125 100.746Pfizer 2/3/2004 2/15/2014 5 AA 750 4.5 105.660Schering-Plough 11/26/2003 12/1/2013 5 AA− 1,250 5.3 103.820Schering-Plough 9/17/2007 9/15/2037 29 AA− 1,000 6.55 101.332Verizon 11/4/2008 11/1/2018 10 A 2,000 8.75 118.582Verizon 11/4/2008 3/31/2039 30 A 1,250 8.95 124.467Warner Chilcott 2/1/2006 2/1/2015 6 BB− 600 8.75 95.000

Euro-denominatedAnheuser-Busch InBev 2/9/2009 2/27/2014 5 BBB+ 750 6.57 100.558Imperial Tobacco 2/10/2009 2/17/2016 7 BBB 1,500 8.375 101.048John Deere 1/19/2009 1/24/2014 5 A 600 7.5 105.801Schering-Plough 10/1/2007 10/1/2014 6 AA− 1,500 5.375 99.710Volkswagen 1/30/2009 2/9/2012 3 A− 2,500 5.625 100.332Volkswagen 1/30/2009 2/9/2016 7 A− 1,000 7 100.238

Pound sterling-denominatedBayer AG 5/23/2006 5/23/2018 9 A− 350 5.625 100.817Imperial Tobacco 2/10/2009 2/17/2022 13 BBB 1,000 9 107.062Tesco 2/17/2009 2/24/2014 5 A− 600 5 100.284

PriceCompany Issue date MaturityYears

remaining to maturity

S&P rating

Amount issued

(millions)Coupon


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Exhibit 12


Selected Comparable Companies’ Data for 2008 (in millions of U.S. dollars)1

Shareholder equity

Total debt

Cash and equivalents

EBITDA Interest expense

Current rating

Bayer AG 21,381 21,779 2,740 8,183 1,626 A− Schering-Plough 10,529 8,176 3,373 2,917 536 AA− Johnson & Johnson 46,100 11,852 10,768 19,001 435 AAA Pfizer 57,556 17,290 2,122 20,929 516 AA Wyeth 19,174 11,739 10,016 7,954 492 A+ GlaxoSmithKline 15,900 25,211 8,758 15,388 1,291 A+ Merck & Co 21,080 6,240 4,368 7,854 251 AA− AstraZeneca 15,912 11,848 4,286 12,553 714 AA Warner Chilcott 1,350 963 36 508 94 BB− Roche Holding 41,569 4,051 4,870 16,751 213 AA−

Roche + Genentech (pro forma) 41,569 46,051 4,870 16,751 2,303

Data source: Capital IQ and case writer analysis.

1 Because the Genentech financial figures were already consolidated in the Roche financial statements, only the debt and interest expense was

expected to vary. The pro-forma interest expense was based on an arbitrary 5% interest rate.


roche holding ag: funding the genentech acquisition · roche was clearly one of the leading...

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