Case study: role for the finance team

The story
Roche Group, the Swiss global healthcare company, had owned a majority stake in Genentech since 1990. The California-based biotechnology company had become an increasingly important part of Roche’s business and, in order to strengthen co-operation, Roche said in July 2008 that it wanted to take full control of Genentech with a hostile bid.

Erich Hunziker, Roche’s chief financial officer, faced a deluge of inquiries from banks who wanted to help finance the deal, on which the upfront fees would reach $250m to $400m. By mid-August 2008, a $45bn syndicated bank facility seemed achievable within two months.

But after the collapse of Lehman Brothers in September 2008, no banks wanted to build a syndicate with potentially vulnerable members. Interbank lending froze as banks focused on survival.

The challenge
By early 2009 Mr Hunziker was trying to figure out how Roche could borrow more than $40bn to finance the buyout of Genentech. Since a syndicated bank loan was no longer possible, Roche turned to the bond markets. But no company had ever issued such a large amount. How could Mr Hunziker and his small team convince nervous bond investors to finance a huge transaction within a short timeframe in the middle of the worst financial crisis since the Great Depression?

The strategy
Mr Hunziker knew Roche had to offer bond investors a compelling story, so he presented the Genentech acquisition as a historically important long-term deal that Roche remained committed to despite the financial crisis. The goal was to merge the two companies to eliminate barriers caused by laws protecting minority shareholders; save overhead costs; and give Roche access to cash generated by Genentech.

Mr Hunziker had a deeper understanding of the acquisition’s benefits, having served as a Genentech director on behalf of Roche for many years. He also understood the needs of potential investors, making him a good candidate to lead the roadshow. He flew six times round the world, in effect playing a sales role to generate interest among potential bond investors.

Finally, Roche consulted leading bond-rating agencies before the roadshow. Standard & Poor’s (correctly) predicted a likely rating of AA- once the transaction closed, which gave Mr Hunziker a basis on which to talk to investors.

The results
Roche completed three successful rounds of bond issuance in less than three weeks. In the first round in the US, Roche raised $19bn at maturities ranging from six months to 30 years. This was the largest amount ever borrowed in the US by a company without the help of a bank or a bank consortium. A week later Roche raised €11.25bn and £1.25bn in Europe, and the next week a further CHF8bn in Switzerland. These were also records. The total raised was roughly $42bn.

By structuring the deal and cutting out the normal intermediaries, Roche reduced transaction costs by at least a half and could allocate shorter- and longer-term bonds according to the needs of the company and the bond investors. Roche closed the Genentech acquisition, securing the support of 96 per cent of minority shareholders at first, and the rest two weeks later.

The lessons
A strong CFO can develop a leadership role, moving beyond the narrow finance function and spearheading long-term strategic decisions. Mr Hunziker could do this because he fully understood Roche’s business model and could communicate it to investors.

Today, volatility and uncertainty remain high, confidence in the banking sector is low, and cash reserves abound. A compelling story and clear value proposition can make the difference in tapping financial markets. For this, a finance department linked to the rest of the business is necessary.
-Financial Times, 26 Mar 2012