Roche Holding AG: A Need for Holistic Approach to the Strategic Approach

Case 11 Questions
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Case 11 Questions
Introduction
Roche Holding AG (Roche) is a Swiss based pharmaceutical firm that mand an offer to purchase of a US based biotechnology company, Genentech. In the subsequent months, the financial market was affected by diverse forces, which made it difficult for the company because of the many associated risks. Through the case study, we can see the diverse factors that emerged from the case study, including the major forces that influenced the debts rating, and the response of the firm to these forces. It is important to ensure that all the diverse aspects associated with firm’s operation are covered and the company can respond to the issues effectively. The company required 42 billion United States dollars to cover the deal, which was funded through a bank loan and bonds. The bond was divided in different currencies, and diverse maturity years. 32 billion of the required cash was to be entirely gathered through the use of bonds.
What is going on at Roche?
Roche is a popular pharmaceutical firm known across the world. The company is considering a bond offering of 32 billion dollars aimed for the acquisition of US biotechnology company, Genentech. The main source of funding for the purchase comes is from a 42 billion dollars loan because there are challenges arising from the company ownership. Through the proposed plan, the funding will come from a bank loan of 10 billion dollars, and the other fund will be raised through public bond. Since the company is a multinational, the bond is intended to be disbursed in three currencies: US dollars, Euro, and British Sterling Pound. The number of United States dollars will be 16.5 billion, and is aimed to be the main bond and has different maturity period. The maturity periods include 1-year, 2-year, 3-year, 5-year, 10-year, and 30-year. What is currently going on within the company is the pricing for these bonds and ensuring that all the tranches in other currencies are properly priced.
Is this an easy time to be going to the public bond market with a massive offering?
The offering is never easy because there are many challenges being experienced in the credit markets in many parts of the world. Many financial institutions are failing because of the challenging times experienced in many parts of the world. Also, Genentech is a company that is surrounded by many uncertainties. When the company fails to perform, this will be a devastating loss for the organization. There is a need to have comprehensive approaches in ensuring that any bond offering attains the intended aims. In the exhibit presented through the case study, we can see that there is a historic low in the Treasury in the past recent months. Another important aspect is that there is global flight in the security of United States of Treasuries. There are also many interest rates reduction in many parts of the world, which makes the investment riskier. The case study also demonstrates that there is a low yield throughout the yield curve. All these aspects make the moment not easy for the company in going for a public bond offering. There are many things and aspects involved that must be addressed before making the bond offering public.
How do we assess the impact of the bond offering on Roche’s credit rating and default risk?
The risks associated with the offering must be analyzed and understood before the company initiates the bond. There are many credit ratings gaps across based on the information presented in the case study. There is a need to understand the estimated credit rating, and although the risks vary depending on the influencing factors, the company must be considerate in evaluating the diverse aspects of the deal. When the company gains additional debt, it may be risky for the success or growth of the company. There is a need to maintain proactive approaches in ensuring the success of the organization. In the case study, there is evidence that the leverage ratios and the Roche pro-forma. The information presented through the pro-forma also reveals the EBITDA ratios. The debt/EBITDA ratio is seen as 2.8 times. On the other hand, the debt-to-equity ratio is seen as 1.04 times. Therefore, when the company is compared to other organization, there is a need to have a holistic approach that will ensure that the company does not enter the aggressive side.
Through these comparisons, there is a need to determine the rating and default risk of the organization. While there is evidence from the case study that Roche is doing better, there is a need to have a proper approach that will make all the different aspects addressed. From the ...