quiz

BUSINESS MANAGEMENT 0

Business management

Pang sun

Business management

Why is Roche seeking to acquire Genentech?

Roche is a shareholder having 56% of the company, but they are looking forward to get the other 44% (Hughes, 2011). Roche owns the majority share of the company since 1990, and there has been a production of less innovative products that are supplied to the market year after years in the pharmaceutical field. The main reason for the merge is to ensure that they will utilize the economies of scale and come up with a more competitive innovative product in the market. The acquisition will increase synergy, reduce operating risks and ensure growth from the healthy competition.

What synergies could the combined company produce?

Due to the merge, the market will experience better innovative products that will produce competition to other pharmaceutical companies. On the other hand, the merger and acquisition would reduce the production cost as compared to the way they were performing individually hence increasing productivity and profitability of the company.

How would you quantify the potential synergies between the two companies to justify the valuation of Genentech?

Owing to the 100% ownership Genentech would be the largest biotechnology company in the world leading to proper utilization of the latest technology and market leaders (Hughes, 2011). The government and administration cost would reduce significantly enabling Genentech to create an affiliate contract extension enabling Roche to distribute the companies best selling drugs out of the American markets. The government cost includes tax reduction, and the administration cost is reduced managerial workforce regardless of the increased company size. Furthermore, the main risk for the full acquisition is that the old company cultures and family environment can be destroyed and new culture implemented which will affect the jobs, performance, and productivity. This can lead to some people losing their jobs and some having to work in a department that they were not used to. As mentioned earlier the acquisition will enable the company to have R &D projects and proper utilization of the technological tools in the market. Finally, this acquisition will provide the company with enough cash of approximately $9 billion which can be used to settle the debts made in the process of acquisition.

What should Franz Hummer do?

Mr. Hummer should review the strategic reason and possibilities of acquisition and the synergies expected from the deal and then provide the probable response to Genentech board in relation to the takeover bid. I think with the proper evaluation of the pros and cons associated with the acquisition now, and in the future, Hummer could forecast the positive impacts related to the deal (Hughes, 2011).

Reference

Hughes, S. (2011). Genentech: the Beginnings of Biotech. Chicago: University of Chicago Press.