Illumina rejects Roche proposal, decries offer as 'grossly inadequate'

In the most recent development of Roche’s ongoing attempts to acquire Illumina Inc., Illumina has announced that after thoroughly reviewing the tender offer, its board of directors has unanimously rejected the proposal

Kelsey Kaustinen
SAN DIEGO—In the most recent development of Roche's ongoingattempts to acquire Illumina Inc., Illumina has announced that afterthoroughly reviewing the tender offer, its board of directors has unanimouslyrejected the proposal. The company has recommended that its shareholders nottender any of their shares to Roche, and has filed a Schedule 14D-9 with theU.S. Securities and Exchange Commission regarding its reasons for rejecting theoffer.
 
 
"It is the Board's unanimous belief that Roche's offerdramatically undervalues Illumina and fails to reflect the value of theCompany's unique leadership position and future growth prospects," Jay Flatley,President and Chief Executive Officer of Illumina, said in a press release."Illumina has established itself as the innovation and market leader in toolsfor genetic analysis, with a proven track record of profitability andoutperformance, resulting in significant value creation. Our industry isnascent, with the promise and potential to experience extraordinary growth inthe years ahead as genetic information becomes broadly applied beyond molecularbiology research, and into medical diagnostics, reproductive health and cancermanagement. As the growth of this industry accelerates, Illumina is singularlypositioned to expand its market leadership, and to deliver value to ourstockholders that is far superior to Roche's offer."
 
Illumina cited a host of reasons for its rejection of theoffer, foremost being that the offer "is grossly inadequate and dramaticallyundervalues Illumina's industry-leading position and growth opportunities." Theboard pointed to Illumina's strong technology portfolio and the fact that thecompany represents a brand that has "a 60 percent share of the next-generationsequencing market," adding that "approximately 90% of the world's sequencingoutput is produced on Illumina instruments." Given the company's track recordand its consistent ability to create significant value for its shareholders,"the Board believes that Illumina's business plan as an independent entity willdeliver substantially greater value to its stockholders than would the Offer."
 
 
The board argued that the timing of Roche's offer was"blatantly opportunistic" as well, noting that in the past two years, "Illuminadelivered seven successive quarters of revenue growth, with its Share pricereaching an all-time high of $79.40 as recently as July 2011." The company's Q32011 results, which were followed by Roche's first approach, reflected what theboard called a temporary "softness in research funding" and were at a two-yearlow. Once funding stabilizes, and given the company's portfolio and new productreleases—such as the HiSeq 2500—the board believes the company will continue togrow. Illumina went on to note that not only does the offer failto "capture Illumina's value as an enabler of personalized healthcare," and thetacit growth that goes along with having a foothold in such a growing field of medicine, the offerseeks to disadvantage Illumina's stockholders, values the company at a pricebelow recent trading levels and its conditions create "significant uncertaintyand risk."
 
The opinions were backed up by inadequacy opinions from Illumina'sfinancial advisors, Goldman, Sachs & Co. and Bank of America Merrill Lynch.
 
In a letter to Roche responding to the offer, Flatley andWilliam H. Rastetter, Ph.D., Chairman of Illumina, conveyed Illumina's unanimousrejection of the offer, noting that "Our Board strongly believes that Illumina'sbusiness plan as an independent entity will deliver value to our stockholdersthat is far superior to Roche's offer." They added that the company's currentmanagement team has routinely produced strong results, "achieving annualincreases in revenue and EPS at compounded growth rates of approximately 42percent and 26 percent, respectively, since 2006."
 
 
"In closing, our Board has noted your decision toopportunistically time your offer to a temporary dislocation in our stockprice. Our Board is confident in Illumina's strong prospects for continued andsubstantially greater value creation in the months and years ahead…your proposal fails to compensate our stockholders forthe intrinsic and scarcity value associated with Illumina's unmatchedleadership position," the letter noted in closing. "Furthermore, we continue tobelieve that our highly qualified, independent directors are better positionedto act in our stockholders' interests than directors selected and compensatedby you to advance your own strategic objectives at the expense of ourstockholders."
 
SOURCE: Illumina press release
 

Kelsey Kaustinen

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