Roche tenders unsolicited $5.7 billion acquisition proposal for Illumina
Illumina, Inc. confirmed today that Roche has made an unsolicited proposal to acquire Illumina and plans to commence a tender offer to acquire all of Illumina’s outstanding shares of common stock for $44.50 per share in cash, for a total of approximately $5.7 billion on a fully diluted basis.| 3 min read
Written byKelsey Kaustinen
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SAN DIEGO—Illumina, Inc. confirmed today that Roche has madean unsolicited proposal to acquire Illumina and plans to commence a tenderoffer to acquire all of Illumina's outstanding shares of common stock for$44.50 per share in cash, for a total of approximately $5.7 billion on a fullydiluted basis. The price represents a 64 percent premium over Illumina's stockprice before rumors of the transaction drove the price up, a 61 percent premiumover its one-month average and a 43 percent premium over the three-monthaverage, all as of Dec. 21, 2011.
"Roche's all-cash offer of $44.50 per share represents fulland fair value for Illumina and we expect that Illumina's shareholders will welcomethe opportunity to sell their shares at a significant premium to current marketprices," Severin Schwan, CEO of Roche Group, said in a press release. "It isour strong preference to enter into a negotiated transaction with Illumina, andwe remain willing to engage in a constructive dialogue with Illumina to jointlydevelop an optimal strategy for maximizing the value of our combined business."
So far, however, Illumina has remained uninterested inparticipating in negotiations, prompting Roche to make its offer to theshareholders. Illumina has counseled its shareholders not to take any actionwhile its Board of Directors reviews the proposal. Goldman, Sachs & Co. andBank of America Merrill Lynch have been brought on as Illumina's financial advisors,and Dewey & LeBoeuf LLP have been brought on as their legal counsel.
According to Roche, the acquisition will strengthen itsfoothold in sequencing and microarrays as it adds in Illumina's experience as aDNA sequencing 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 the current headquarters of RocheApplied Science in Penzberg, Germany.
In addition to its business offerings, Illumina has beenfairly strong financially despite the economic turmoil of recent years. Forfiscal 2010, Illumina reported revenue of $902.7 million, a 35 percent increaseover 2009, and GAAP net income of $124.9 million, or $0.87 per diluted share,almost double the $72.3 million or $0.53 per share reported in fiscal 2009. Thecompany generated $272.6 million in cash from operations for the year, comparedto $172.2 million in fiscal 2009. For the third quarter of fiscal 2011,Illumina reported revenue of $235.5 million, down 1 percent from $237.3 in thesame period in 2010, and GAAP net income of $20.2 million, or $0.15 per dilutedshare, compared to $35.4 million, or $0.24 per diluted share, in the thirdquarter of 2010. In a press release reporting its Q2 fiscal 2011 results,Illumina's financial forecast for fiscal year 2011 predicted revenue growth of24 to 26 percent from fiscal 2010's revenue of $902.7 million, with non-GAAPearnings per diluted share increasing 33 to 36 percent from 2010's non-GAAPearnings per diluted share of $1.06. The company will release its fiscal 2011 full year results on Jan. 31, 2012.
Roche remains serious about the transaction despiteIllumina's lack of interest, with Dr. Franz Humer, Chairman of Roche HoldingLtd., noting in a letter to Jay Flatley, President and CEO of Illumina, thatthey believe the proposal "presents a unique opportunity for Roche and Illuminaand their respective stockholders," adding that "Roche believes that it isimperative to continue to pursue this matter."
"As I have expressed to you previously, we are mindfulthat you and your management team have contributed greatly to Illumina'ssuccess," said Humer in the letter. "Roche contemplates continued employment ofIllumina's management and employees following the consummation of a transactionand we are prepared to work with you to develop mutually satisfactoryemployment arrangements. We intend to continue the Illumina legacy within theRoche Diagnostics Division, and to maintain the Illumina brand."
Though Roche has not set a deadline for Illumina to respond,Roche plans to nominate a slate of independent candidates for election toIllumina's board and propose other matters for its shareholders to consider atIllumina's 2012 annual meeting. If adopted, these issues would result in themajority of Illumina's board consisting of Roche-nominated directors.
"The proposed acquisition will strengthen Roche's currentoffering in the Life Science market by providing complementary solutions to ourcurrent portfolio," Daniel O'Day, COO of the Roche Diagnostics Division, saidin a press release. "Our ability to offer a total solution to researchers willhelp enable the discovery of complex new biomarkers improving drug discoveryand the selection of patients most likely to respond to a targeted treatmentwith high clinical relevance. In addition, by building on Illumina'scapabilities Roche will be able to use its scale, global distribution anddiagnostic test development expertise to develop new diagnostic tests thatserve patients and customers even more effectively."
The offer is subject to customary conditions, including thetender of a majority of Illumina's shares, and will be financed from availablecash on Roche's balance sheet as well as borrowings under its creditfacilities. Greenhill & Co., LLC and Citigroup Global Markets, Inc. havebeen brought on as Roche's financial advisors, and Davis Polk & WardwellLLP have been brought on as its legal counsel.
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