Roche files definitive proxy, sends letter to Illumina shareholders

Roche has announced today that it has filed a definitive proxy statement, in addition to sending a letter to Illumina’s shareholders.

Kelsey Kaustinen
BASEL, Switzerland—In keeping with Illumina, Inc.'s filingof definitive proxy materials yesterday, Roche has announced today that it toohas filed a definitive proxy statement, in addition to sending a letter toIllumina's shareholders encouraging them to both tender their shares intoRoche's offer. The letter also encourages Illumina shareholders to vote for thenominees Roche selected for Illumina's board of directors and to vote in favorof the proposals Roche has put forward that, if passed, would give it amajority on Illumina's board should Roche's nominees be elected.
 
 
The letter came from Severin Schwan, CEO of Roche Group, andcontains an extensive argument in favor of Roche's offer. It reiterated thatRoche considers the offer to be full and fair, one that "provides valuecertainty and liquidity today to shareholders."
 
"[The offer] allows shareholders to immediately realize,upon the closing of our tender offer, a significant return relative to theunaffected share price," the letter noted. "Additionally, the 29.5xPrice/Earnings (P/E) and 5.6x Enterprise Value/Revenue multiples represented byour offer value Illumina well above any of its peers and above multiplesoffered in recent precedent life sciences tools transactions."
 
 
Schwan went on to point out that "Looking at 2012 and 2013,Illumina will continue to face revenue headwinds due to uncertainty overgovernment funding levels, corresponding hesitation to spend byinstitutional/academic customers, competition from innovative next generationsequencing 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 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."
 
 
The offer, he said, stands well above what Illumina couldexpect to be earning per share without the publicity of the offer to drive upshare price, in keeping with the potential of the sequencing market andIllumina's assets and management team. For Illumina to offer its shareholdersgreater value as a standalone company rather than part of Roche, it would haveto "execute its long-term plan flawlessly," something Schwan noted could bedifficult given Illumina's lack of scale and infrastructure for expanding intothe life science and clinical diagnostics market, as well as its lack ofexperience in "regulated areas such as clinical diagnostics that requiresignificant system development, experience in performing clinical trials, andexperience to successfully interact with the FDA."
 
 
The letter concluded with a note that Roche "also want[s]Illumina's CEO, Jay Flatley, to be an active participant in those discussionsand hope that he would choose to remain with Illumina after its acquisition byRoche."
 
"Although Mr. Flatley's seat on the Illumina Board is one ofthose we are contesting in this election, if after the election one of theremaining incumbent Illumina directors chose to resign, Roche would support anyBoard decision to have Mr. Flatley fill that vacancy," Schwan added.
 
Illumina's annual meeting, at which the board elections willtake place and this issue might see a conclusion, is set for April 18.

Kelsey Kaustinen

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