Reinforcing their lines

Illumina stands fast as Roche continues takeover attempt

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ZURICH—Facing a continuing uphill battle in its effort toacquire Illumina Inc., Roche announced earlier this month that it has other alternativesin mind if its proposed takeover fails.
"Roche and Illumina both stand to benefit from a rapidmerger. However, this is a sector where we have other options should thetransaction fail over price," Franz Humer, chairman of Roche, said at the company'sannual shareholder meeting.
Roche's acquisition efforts, which began in January, havenot progressed very far as of yet. Illumina's board of directors rejectedRoche's $5.7 billion offer and cautioned its shareholders not to tender theirshares to the offer, even going as far as enacting a "poison-pill" stockdefense. The offer was due to expire on Feb. 23, and on Feb. 27, Rocheannounced that approximately 102,165 shares had been tendered to the offer,adding that it had extended its offer to March 24 at midnight.
Illumina announced on March 19 that it had filed definitiveproxy materials with the U.S. Securities and Exchange Commission in connectionwith its 2012 annual meeting, which is set to take place on April 18. Inaddition to announcing the meeting's date, Illumina also urged its shareholdersonce again to reject Roche's offer. Illumina's annual meeting has the potentialto be a turning point for the acquisition saga if Roche's nominees are electedto Illumina's board of directors and Roche's proposals are approved, allowingit to gain majority control of Illumina's board.
On March 20, Roche responded with an announcement that ittoo had filed its definitive proxy statement and had sent a letter toIllumina's shareholders from Severin Schwan, CEO of the Roche Group,encouraging them to accept its acquisition offer.
The letter reiterated the benefits of Roche's offer, interms of the immediate value and the fact that, according to Roche, the offer'svalue surpasses what Illumina would provide for its shareholders as astandalone company. Schwan also added that Illumina's outlook is uncertain, asit "will continue to face revenue headwinds due to uncertainty over governmentfunding levels, corresponding hesitation to spend by institutional/academiccustomers, competition from innovative next-generation sequencing devices andrapidly evolving novel sequencing technologies." The company, Schwan noted,"recently issued its lowest revenue and earnings growth guidance in the pastfive years." In addition, he noted that without the offer Roche has on thetable, Illumina's stock—which has surpassed Roche's offer price of late—wouldlikely be seeing considerably lower prices.
The March deadline came and went, and subsequently wasextended to April, with only a little more than 144,000 shares tendered at thatpoint. Shortly thereafter, Roche increased its offer to $51 per share from theoriginal $44.50 per share.
Illumina's board, after a short deliberation, rejected thatoffer as "grossly inadequate" as well and reaffirmed to shareholders the opinion thatthey should not tender their shares to Roche.
From the looks of things, Roche's acquisition attempt islikely to turn into a repeat of Roche's acquisition process with Ventana, whichtook seven months and a 19-percent increase on the original offer to complete.Analysts expect that the Illumina offer will similarly require a larger pricetag if it is to be completed. If Illumina's shareholders aren't swayed byRoche's offer and do not vote to approve of Roche's board proposals andnominees at the annual meeting, the process will likely go back to being awaiting game.
Analysts acknowledge that there are definitely other playersin the gene sequencing section of the market, including Ion Torrent of LifeTechnologies and Oxford Nanopore Technologies, but Illumina remains the marketleader.
"There are alternatives, but not of Illumina's quality,"Karl-Heinz Koch of Helvea said in a press release.
Whether or not Roche is right about Illumina's futureprospects remains to be seen, though Illumina has had encouraging developmentof late in its sequencing technology. Early January saw the release of itsHiSeq 2500, a next-generation sequencing system that will allow forwhole-genome sequencing in roughly 24 hours, and February saw the launch of itsCancer Analysis Service. Illumina introduced a new cancer panel for its MiSeqsystem, the TruSeq Amplicon Cancer Panel, in March, which enables accuratesequencing of hundreds of cancer loci, even in formalin-fixed paraffin embeddedsamples. The company also added the Broad Institute to its Illumina GenomeNetwork.
Martin Voegtli of Kepler Capital Markets said he does notexpect Roche "will walk away from Illumina," adding that if Illumina'sshareholders "notice that they can't get much more, the pressure will increaseto examine a combination of the Roche and Illumina businesses."
Neither company responded to requests for further comments.

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