Roche extends hostile acquisition offer yet again, Illumina continues to resist

With the annual shareholder meeting fast approaching, Roche extends its offer and still refuses to raise its per-share price, while Illumina urges shareholders to stand fast, painting Roche a company trying to ‘steal’ Illumina from those who own stock in it

Jeffrey Bouley
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BASEL, Switzerland—Given that the annualshareholder meeting for Illumina Inc. isn't until April, it's little surpriseto anyone that Roche's deadline for Illumina shareholders to accept the $44.50-per-shareprice for its attempted hostile takeover got a second one-month-long extensionthis week. What might surprise a few, though, is that Roche has still notbudged from that price, which is the same one it put forward back in Januarywhen it initiated the $5.7 billion unsolicited bid for Illumina.
 
 
The response from Illumina so far has beentwofold. On the general public front, it has said, "Illumina's board of directorscontinues to believe that Roche's offer is grossly inadequate, and thatIllumina is positioned to create far more value than Roche has offered. Ourstockholders clearly agree." No doubt the last part of that comment refers tothe fact that only a little more than 144,000 shares had been tendered to Rocheas of March 23.
 
 
More directly and pointedly to the shareholders,however, Illumina has sent a second letter to them in response to the latestmove by Roche to extend its deadline to April 20, which would be two days afterthe Illumina shareholders meeting.
 
 
In that letter, Illumina uses such language as "Don'tlet Roche seize value that belongs to you!" and calling Roche's actions thusfar "self-serving" and its offer a "low-ball price." More pointedly, itportrays Roche as a kind of bandit when it asks, "Why does Roche want toacquire Illumina? Because, in an industry on the verge of tremendous growth 'wherethe winners will be those that can effectively innovate, commercialize andexecute,' Roche knows that Illumina is uniquely positioned to deliver. Rochehas repeatedly acknowledged Illumina's leadership in this space and strongperformance across numerous key financial and operational metrics, underscoringwhy they are so interested in trying to steal your company from you today."
 
 
The saga began on Jan. 25 with the unsolicited proposaland Severin Schwan, CEO of Roche Group, insisting that its all-cash offer of$44.50 per share "represents full and fair value for Illumina and we expectthat Illumina's shareholders will welcome the opportunity to sell their sharesat a significant premium to current market prices. It is our strong preferenceto enter into a negotiated transaction with Illumina, and we remain willing toengage in a constructive dialogue with Illumina to jointly develop an optimalstrategy for maximizing the value of our combined business."
 
 
According to Roche, the acquisition would strengthen itsfoothold in sequencing and microarrays as it adds in Illumina's experience as aDNA sequencing systems provider. Roche's stated plans thus far involvecombining Illumina with its Roche Applied Science business and moving theheadquarters to San Diego, though operations would still be maintained at thecurrent headquarters of Roche Applied Science in Penzberg, Germany.  
 
 
On Jan. 26, Illumina announced the adoption of astockholders rights agreement, a "poison pill" defense against the hostiletakeover bid, and on Feb. 7, the company announced that after reviewing Roche'soffer, Illumina's board unanimously rejected the proposal.
 
 
In February, Roche nominated a slate of fourindependent candidates for election to Illumina's Board of Directors, and willpresent the candidates and other matters for consideration by Illumina'sshareholders at Illumina's 2012 annual meeting. Five alternate nominees havealso been named, and if the candidates and other matters are adopted—such asincreasing the size of the board from nine directors to eleven directors—theRoche-nominated directors will comprise a majority of Illumina's board.
 
 
"Our proposed slate of directors is composed ofwell-qualified and distinguished executives who we believe, if elected, willact in the best interest of Illumina's shareholders," said Schwan at the time."We believe that the proposed directors will carefully review the valuerepresented by Roche's offer and ensure that Illumina acts in the bestinterests of its shareholders."  
 
 
Illumina's board of directors then sent theirfirst letter to stockholders, urging them to "protect the value of theirinvestment by rejecting Roche's unsolicited and opportunistic efforts toacquire Illumina on grossly inadequate terms" and adding that the boardrecommends stockholders "vote for the election of Illumina's highlyqualified nominees" rather than voting for Roche's candidates and desireto have a larger board.
 
 
Illumina's first letter also stated, "We alonehave succeeded in a marketplace that has witnessed numerous attempts by othersto establish viable sequencing and array businesses, none of which haveachieved a similar level of success. In fact, one of the reasons Roche isdesperate to acquire Illumina is that Roche's own efforts in our market haveseverely disappointed."
 
Standing fast on his own company'sas-yet-unwavering offer of $44.50 per share, Schwan has said that "Looking at2012 and 2013, Illumina will continue to face revenue headwinds due touncertainty over government funding levels, corresponding hesitation to spendby institutional/academic customers, competition from innovative nextgeneration sequencing devices and rapidly evolving novel sequencing technologies.Reflective of these headwinds, Illumina management recently issued its lowestrevenue and earnings growth guidance in the past five years." He has added thatIllumina's growth will be hampered by several factors, including an increasedneed for investment and increased competition for market share, and opines that"absent Roche's offer, Illumina's shares would likely trade at a significantlylower price."


Jeffrey Bouley

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