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Playing hard to get
March 2012
by Kelsey Kaustinen  |  Email the author


SAN DIEGO—In what is shaping up to be another long fight on par with its acquisition of Ventana, Roche's attempt to acquire Illumina Inc. hit the one-month mark without either company giving any ground.  
On Jan. 25, Illumina confirmed that it received an unsolicited acquisition proposal from Roche regarding its plans to commence a tender offer to acquire all of Illumina's outstanding shares of common stock for $44.50 per share in cash, for a total of approximately $5.7 billion on a fully diluted basis. The price represents a 64-percent premium over Illumina's stock price before rumors of the transaction drove the price up, a 61-percent premium over its one-month average and a 43-percent premium over the three-month average, all as of Dec. 21, 2011.
The offer followed several fruitless attempts on Roche's part at a negotiated transaction, which Roche noted heralded the commencement of its tender offer. Illumina counseled its shareholders not to tender any of their shares to the offer, and the next day opted for a "poison-pill" defense, adopting a rights agreement with regards to its stock.  
Roche professed to being "disappointed" with the decision, but was undeterred. On Jan. 27, it commenced its tender offer, which is scheduled to expire at midnight on Feb. 24 unless the offer is extended. Roche went on to announce on Jan. 31 that it would be nominating a slate of independent candidates for election to Illumina's board of directors at its 2012 annual meeting. Five alternate nominees were also named, and if the candidates and other matters are adopted—such as increasing the size of the board from nine directors to 11—the Roche-nominated directors would comprise a majority of Illumina's board.  
"Although we are taking this step, our strong preference remains to engage in a constructive dialogue with Illumina to jointly develop an optimal strategy for maximizing value for Illumina shareholders and our combined business, " Severin Schwan, CEO of Roche Group, said of the announcement. "Despite our repeated attempts, Illumina has been unwilling to participate in substantive discussions regarding a negotiated transaction."
Illumina was unwilling to be wooed, announcing on Feb. 7 that its board unanimously rejected the offer, decrying it as being "grossly inadequate" given Illumina's strong technology portfolio and a brand that has "a 60-percent share of the next-generation sequencing market." The timing of the offer was also determined to be "blatantly opportunistic," as Illumina's Q3 results reflected what the board called a temporary "softness in research funding" and were at a two- year low, noting that its share price reached $79.40 in July 2011.  
In a letter to Roche conveying its rejection of the offer, Flatley and Dr. William H. Rastetter, chairman of Illumina, said, "Our board strongly believes that Illumina's business plan as an independent entity will deliver value to our stockholders that is far superior to Roche's offer." They went on to note that they felt their current directors were "better positioned to act in our stockholders' interests than directors selected and compensated by you to advance your own strategic objectives at the expense of our stockholders."  
The rejection was backed up by inadequacy opinions from Illumina's financial advisors, Goldman, Sachs & Co. and Bank of America Merrill Lynch.  
Roche was again "disappointed" with the decision, maintaining that it considered the offer to be "full and fair" and stood ready for negotiations at any time. By Feb. 24, Roche reported approximately 102,165 shares tendered, which Illumina called an "extremely low number," and on Feb. 27, Roche extended the offer to midnight on March 23.  
According to Roche, the acquisition will strengthen its foothold in sequencing and microarrays given Illumina's experience as a DNA sequencing systems provider. The company plans to combine Illumina with its Roche Applied Science business and move the headquarters to San Diego, though operations will still be maintained at Roche Applied Science's current headquarters in Penzberg, Germany. The company "contemplates continued employment of Illumina's management and employees following the consummation of a transaction."  
Analysts are generally split as to whether other companies will join the proceedings, with some noting that the length of the process could give interested parties time to examine Illumina while others consider it unlikely anyone will step forward to beat Roche's bid. Most agree, however, that a higher offer from Roche is likely.  
"We are hearing takeout multiples in the $60 to $80 range—the premium is based upon Illumina's market dominance, long-term sustainable growth of the industry and Illumina's potential synergies with Roche's life science, diagnostic and pharmaceutical business," Mizuho Securities analyst Peter Lawson told MarketWatch.  
Neither Roche nor Illumina responded to requests for additional comments.

The Broad Institute joins Illumina's Genome Network
SAN DIEGO—Illumina Inc. announced last month that the Broad Institute has joined the Illumina Genome Network (IGN) to offer its proprietary sample preparation processes for whole-human genome sequencing.  
According to Illumina, the Broad's pioneering approach enables high-quality sequencing of challenging low input DNA (<500 ng) and formalin-fixed, paraffin- embedded (FFPE) samples. This offering will allow researchers to interrogate these valuable samples that had previously been unable to be sequenced, with the objective to accelerate discovery in critical fields such as oncology, says Illumina.  
"The IGN is the leader in whole human genome sequencing services. We are excited to add a world leading institution such as the Broad Institute to our prestigious list of IGN partners," said Christian Henry, senior vice president and general manager of Illumina's Genomic Solutions Business Unit., in a statement. "The Broad Institute's innovative sample preparation methods provide researchers with the ability to sequence samples that were previously inaccessible with existing techniques."   Suitability of projects for these specialized services will be evaluated jointly by the Broad and Illumina.  
The IGN links researchers interested in conducting large whole-human genome sequencing projects with leading institutes worldwide that provide access to Illumina sequencing.
Code: E031202



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