Roche was assisted by Greenhill & Co. in estimating the a fair value of Genentechs shares. Greenhill & Co.

used a 9% rwacc and a 2% long-term growth rate (after 2018). However, it is known that the beta of Genentech
is 0.26 (Exhibit 7), that the market risk premium is 7.1% and risk free rate is 4.01% (Exhibit 16). With CAPM
the capital cost of the asset or rE can be calculated.

rE= rf + Gen ( market risk premium )

rE= 4.01% + 0.26 ( 7.1%) = 5.9%

The total assets of Genentech can be found in Exhibit 4. With total shareholder equity of 15.671 billion dollars
and total liabilities (commercial papers, current- and long-term liabilities) of 6. 116 billion dollars, Genentech
has total assets of 21.787 billion dollars. With these data the rwacc can now be calculated.

rwacc= ( E / (E+D)) rE + ( D / (E+D)) (1- corporate tax rate)

Corporate tax rate of 31 % and debt cost of 5.7% (Exhibit16) are used here.

rwacc= ( 15.671 / 21.787 ) 5.9% + ( 6.116 / 21.787 ) 5.7% ( 1 0.31) = 5.3%

Now we see that the rwacc used by Greenhill is much greater that the r wacc calculated above. This is most probably
why the estimations of share price made by Greenhill and Goldman are different from each other. Using higher
rwacc could make the value of a company become lower. The reasonable range of Genentech share value can be
determined by calculating the lowest end of the range by using r wacc of 9% in the discounted cash flow method,
and using rwacc of 5.3% for the highest end of the range.

Lowest range:

Lets take the forecast free cash flow 3.113 billion dollars (Exhibit 10) and long-term grow rate of 2% for
calculating this companys value

Value of Genentech:
 = 3.113 / ( 1 + 0.09) + 3.113 / ( 1 + 0.09)2 + + 3.113 / ( 1 + 0.09)10 + 3.113 / ( 0.09- 0.02)

= 64. 44

With the value of 64.44 billion dollars and 1.053 billion shares outstanding in 2008, the share price of Genentech
would be $ 61.20. This is very interesting to see that this price is even lower than the market price of
Genentechs share in bad financial period, which is $ 65.60 (Exhibit 4). Naturally, Roche would find that their
proposed offer price of $ 89 was above anything that standard valuation methodologies would justify. As
analyses shown in Exhibits 12, 13 and 14 tend to confirm the valuation range of $ 70 and $ 80 per share.

However, we can now also calculate the value of Genentech if rwacc of 5.3% is used

Value of Genentech:

= 3.113 / ( 1 + 0.053) + 3.113 / ( 1 + 0.053)2 + + 3.113 ( 1 + 0.09)10 + 3.113 ( 0.053 0.02)

= 117.65

And with this enterprise value the price per share would then be $ 111.73. This price come close to the $ 112
counteroffer. So it can be assumed that Goldman might have a lower r wacc to estimate Genentechs value. There
are not many more data that can be used to estimate this companys value or its share price. However with the
calculations above it can be concluded that reasonable range of Genentechs share price should be between $
64.44 per share and $ 111.73 per share.
 Taking all these data above and the expected free cashflow of 3.113 millions dollars (exhibit
10) into consideration, a reasonable range for the standalone value of Genentech could be
once more calculated with the rwacc that is determined below.

i. rE = 4.1% + 0.26 * 7.1% = 5.9%

ii. rwacc= (15,671/21,787) * 5.9% + (6,116/21,787) * 5.7% * (1- 0.31) = 5.3%

iii. Vof the highest end = 117.65 millions dollars

iv. Price per share would then be $111.73

The data are rounded. So consider all of them as approximates of the real data.

For the lower end

of the range: the same concept of calculation only with r wacc 9% according to Roche's estim
ation. Then the value would be 64.44 million dollars and the price per share would be $61.20