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Roche Holding AG: Funding the Genentech ...

Schill, Michael J....

Case

Roche Holding AG: Funding the Genentech Acquisition

Schill, Michael J.; Durick, Brett; Chambers, Drew

F-1645 | Published March 22, 2011 | 16 pages Case

Collection: Darden School of Business

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This case examines the decision by the Swiss pharmaceutical Roche Holding AG (Roche) to offer a record $42 billion bond in February 2009. In light of a pending acquisition of US biotechnology leader Genentech, Roche management planned to sell $32 billion in bonds at various maturities from 1 year to 30 years and in three different currencies (US dollar, euro, and British pound). In a context of substantial uncertainty in both world financial markets and the value of the Genentech deal, students are introduced to the pricing of corporate bonds by being invited to price Roche’s bold global offering.

The case is designed to introduce the concept of a risk premium and to accomplish the following potential additional teaching objectives: 1) Motivate the concept of a risk premium and the notion of a cost of debt by exposing students to estimating default risk, credit ratings, and credit spreads. 2) Review yield curve principles and mechanics. 3) Practice bond math and credit market terminology. 4) Establish institutional detail for the public security offering process. 5) Introduce the risk-return paradigm in finance.