ROCHE HOLDING AG: FUNDING THE GENENTECH ACQUISITION Harvard Case

The central question for the case is the pricing of corporate bonds. The case is designed to introduce these key concepts such as: risk premium, cost of debt, default risk, credit ratings, and credit spreads, bond pricing, credit market, and risk-return. (Please also refer to the textbook chapters on bond valuation, and risk and returns etc.)

What is going on at Roche?

Is this an easy time to be going to the public bond market with a massive offering? (Hint: See Exhibit 5, 7 & 8.)

How do we assess the impact of the bond offering on Roches credit rating and default risk? (Hint: It is critical to assess the post-deal risk. What are the prevailing spreads for non-Roche bonds? Do you think these spreads are similar to investors required yield for the Roche bonds? You need to compute the leverage ratios in Excel Table 1 and refer to Exhibit 9 to make a recommendation for an appropriate rating for the bond.)

How do we estimate the risk premium associated with the estimated default risk? (What is your specific recommendation for the coupon rate for the Roche 10-year, and 30-year U.S. dollar bonds? One way to estimate the required premium for the Roche bonds is the prevailing average spreads for U.S. industrial bonds. Compute the bond spread. Refer to Table 2-5 in Excel.)