Playing hard to get

Illumina remains defiant in the wake of Roche’s takeover bid

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SAN DIEGO—In what is shaping up to be another long fight onpar 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 anunsolicited acquisition proposal from Roche regarding its plans to commence atender offer to acquire all of Illumina's outstanding shares of common stockfor $44.50 per share in cash, for a total of approximately $5.7 billion on afully diluted basis. The price represents a 64-percent premium over Illumina'sstock price before rumors of the transaction drove the price up, a 61-percentpremium over its one-month average and a 43-percent premium over the three-monthaverage, all as of Dec. 21, 2011.
The offer followed several fruitless attempts on Roche'spart at a negotiated transaction, which Roche noted heralded the commencementof its tender offer. Illumina counseled its shareholders not to tender any oftheir 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 isscheduled to expire at midnight on Feb. 24 unless the offer is extended. Rochewent on to announce on Jan. 31 that it would be nominating a slate ofindependent candidates for election to Illumina's board of directors at its2012 annual meeting. Five alternate nominees were also named, and if thecandidates and other matters are adopted—such as increasing the size of theboard from nine directors to 11—the Roche-nominated directors would comprise amajority of Illumina's board.
"Although we are taking this step, our strong preferenceremains to engage in a constructive dialogue with Illumina to jointly developan optimal strategy for maximizing value for Illumina shareholders and ourcombined business," Severin Schwan, CEO of Roche Group, said of theannouncement. "Despite our repeated attempts, Illumina has been unwilling toparticipate in substantive discussions regarding a negotiated transaction."
Illumina was unwilling to be wooed, announcing on Feb. 7that its board unanimously rejected the offer, decrying it as being "grosslyinadequate" given Illumina's strong technology portfolio and a brand that has"a 60-percent share of the next-generation sequencing market." The timing ofthe offer was also determined to be "blatantly opportunistic," as Illumina's Q3results reflected what the board called a temporary "softness in researchfunding" and were at a two-year low, noting that its share price reached $79.40in July 2011.
In a letter to Roche conveying its rejection of the offer,Flatley and Dr. William H. Rastetter, chairman of Illumina, said, "Our boardstrongly believes that Illumina's business plan as an independent entity willdeliver value to our stockholders that is far superior to Roche's offer." Theywent on to note that they felt their current directors were "better positionedto act in our stockholders' interests than directors selected and compensatedby you to advance your own strategic objectives at the expense of ourstockholders."
The rejection was backed up by inadequacy opinions fromIllumina's financial advisors, Goldman, Sachs & Co. and Bank of AmericaMerrill Lynch.
Roche was again "disappointed" with the decision,maintaining that it considered the offer to be "full and fair" and stood readyfor negotiations at any time. By Feb. 24, Roche reported approximately 102,165shares 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 itsfoothold in sequencing and microarrays given Illumina's experience as a DNAsequencing systems provider. The company plans to combine Illumina with itsRoche Applied Science business and move the headquarters to San Diego, thoughoperations will still be maintained at Roche Applied Science's currentheadquarters in Penzberg, Germany. The company "contemplates continuedemployment of Illumina's management and employees following the consummation ofa transaction."
Analysts are generally split as to whether other companieswill join the proceedings, with some noting that the length of the processcould give interested parties time to examine Illumina while others consider itunlikely 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 $80range—the premium is based upon Illumina's market dominance, long-termsustainable growth of the industry and Illumina's potential synergies withRoche's life science, diagnostic and pharmaceutical business," MizuhoSecurities analyst Peter Lawson told MarketWatch.
Neither Roche nor Illumina responded to requests foradditional comments.

The Broad Institutejoins Illumina's Genome Network
SAN DIEGO—Illumina Inc. announced last month that the BroadInstitute has joined the Illumina Genome Network (IGN) to offer its proprietarysample preparation processes for whole-human genome sequencing.
According to Illumina, the Broad's pioneering approachenables high-quality sequencing of challenging low input DNA (<500 ng) andformalin-fixed, paraffin-embedded (FFPE) samples. This offering will allowresearchers to interrogate these valuable samples that had previously beenunable to be sequenced, with the objective to accelerate discovery in criticalfields such as oncology, says Illumina.
"The IGN is the leader in whole human genome sequencingservices. We are excited to add a world leading institution such as the BroadInstitute to our prestigious list of IGN partners," said Christian Henry,senior vice president and general manager of Illumina's Genomic SolutionsBusiness Unit., in a statement. "The Broad Institute's innovative samplepreparation methods provide researchers with the ability to sequence samples thatwere previously inaccessible with existing techniques."
Suitability of projects for these specialized services willbe evaluated jointly by the Broad and Illumina.
The IGN links researchers interested in conducting largewhole-human genome sequencing projects with leading institutes worldwide thatprovide access to Illumina sequencing.

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