Roche: Illumina's fiduciary duties 'require engagement'

Both companies address Illumina's shareholders following second offer and rejection

Kelsey Kaustinen
SAN DIEGO—Illumina, Inc. announced to its shareholders on April 2that its board of directors and advisors had reviewed the increased acquisitionoffer from Roche and again determined it to be "grossly inadequate," addingthat "Roche's revised hostile offer is nothing more than the next step in itsaggressive campaign to opportunistically acquire Illumina at the lowestpossible price." Illumina sent a letter to Roche announcing the rejection, andcautioned its shareholders once again not to tender their shares to the offer.
 
 
Following Illumina's rejection of Roche's latest andincreased offer, both companies released additional letters to Illumina'sshareholders in support of their positions on the offer. Illumina released itsletter on April 3, noting that the company is "singularly positioned as theleading player whose technologies, products and services are fundamental to thesector." 
 
The company's letter referenced a comment from J.P. MorganSecurities LLC analyst Tycho W. Peterson that "… the potential for sequencingin the clinical markets is large (billions of dollars or more), and the cost ofsequencing is approaching a point where it is rapidly becoming economical forclinical trials and cancer management." Illumina backed up that analysis in itsletter, noting that markets such as agricultural biotechnology, veterinarymedicine, forensics and molecular diagnostics are gaining ground as new marketsof revenue for the company, ones that have the potential to "more than doublethe size of Illumina's addressable market from $4 billion to over $8 billion."The molecular diagnostics field alone, the company noted, "represents a $3billion long-term growth opportunity."
 
 
"Your Board is unanimous in its conviction that execution ofour strategic plan will create considerably more value than Roche is offering.We will not let Roche capture value at the expense of Illumina's stockholders,"the company noted in its letter from President and CEO Jay Flatley and ChairmanWilliam Rastetter, Ph.D.
 
 
Roche once again expressed disappointment with the response,reiterating the fact that the offer represented a substantial value forIllumina's shareholders.
 
"By not engaging with Roche, Illumina reinforces the notionthat its Board and management are determined to preserve their positions ratherthan maximize shareholder value," Severin Schwan, CEO of Roche Group, said in apress release. "We expect that Illumina shareholders will see the substantialvalue in our increased offer, conclude that there is absolutely no justificationfor Illumina's current directors' refusal to begin discussions with Roche andvote their shares for the Roche director nominees."
 
 
Roche sent its second letter to Illumina's shareholders onApril 4, once again encouraging them to tender their shares to the offer andsaying that "at $51, the fiduciary responsibilities of the board and managementof Illumina require engagement." The company, Roche added, "has yet to make asingle quantitative argument substantiating its future growth," which has beenIllumina's primary argument for rejecting Roche's offer.
 
 
"Wall Street research analysts who understand the futurepotential of the sequencing market, Illumina's role in the industry, as well asits future growth prospects had already factored this potential into theirprice targets prior to Roche's offer – and these price targets had a medianvalue of $34 per share," Schwan noted in the letter. "We believe our offer ishighly attractive, representing both full and fair value as well as valuecertainty today that fully incorporates Illumina's future growth prospects."
 
Goldman,Sachs & Co. and Bank of America Merrill Lynch are serving as Illumina'sfinancial advisors throughout this process, and Dewey & LeBoeuf LLP isserving as its legal counsel. For its part, Roche has brought on Greenhill& Co., LLC and Citigroup Global Markets, Inc. as its financial advisors andDavis Polk & Wardwell LLP as its legal counsel.

Kelsey Kaustinen

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