In response to Roche’s hostile acquisition offer, Illumina’s board of directors has adopted a shareholders rights agreement, or poison pill. The Illumina board decided to go down this route to ensure that its stockholders receive fair treatment and protection in connection with any proposal to acquire the company and to provide stockholders with adequate time to properly assess any such proposal or without undue pressure while also safeguarding their opportunity to realize the long-term value of their investment in the company, explains Jay Flatley, CEO of Illumina.
Yesterday, Roche went public with a $5.7 billion bid for the company after spending a month trying to engage Illumina management in private discussions. Bloomberg reports that according to Robert W. Baird & Co. and Water Island Capital LLC, “Roche, the world’s biggest maker of cancer drugs, could eventually pay $60 a share, or 35 percent more than the current proposal.” Roche offered $44.5 per share, a 64% premium over Illumina’s stock value on December 21, 2011. Illumina’s stock price jumped as high as $55.32 during trading yesterday and closed at $55.04.
Roche is no stranger to mega mergers or to bidding wars. It spent about eight months haggling with Genentech, finally winning the company over with $95 per share in March 2009 after starting at $89 per share. The total value of the final purchase, which covered the 45% of Genentech that Roche didn’t already own, was $46.8 billion.
Back in 2007, Roche tried to pick up Ventana Medical Systems, and that takeover tug of war lasted almost five months. Ventana finally agreed to a $3.4 billion agreement, in which Roche upped its bid 19.33% to ink a definitive merger agreement at $89.50 per share.
While Genentech significantly boosted Roche’s biologics business, Ventana added molecular diagnostic capabilities. Three months prior to making its initial bid for Ventana, in March 2007 Roche bought 454 Life Sciences in a deal worth $154.9 million to gain control of the company’s DNA-mapping technology. Since then, 454, Life Technologies, and Illumina have been in a race to make the most efficient next-generation sequencing machines.
Life Technologies and Illumina pulled ahead in that race on January 10 of this year when both launched one-day sequencers. Life Technologies closed January 24, the day before Roche divulged its move for Illumina, at $47.30 for a market cap of about $8.42 billion. Illumina’s market cap even after its shares got a boost from the Roche news is around $6.7 billion. Even at $60 per share, Illumina would have a market cap of about $7.3 billion.
As Roche decides whether to increase its offer or not, Illumina is trying to safeguard its shareholders with the rights agreement, or poison pill. Under the rights agreement, one preferred stock purchase right will be distributed as a dividend on each share of the company’s common stock held of record as of the close of business on February 6, 2012. Initially, the rights will be represented by the company’s common stock certificates or by the registration of uncertificated shares of common stock in the company’s share register and will not be exercisable.
Also under the rights agreement, with certain exceptions, if any person or group becomes the beneficial owner of 15% or more of the company’s common stock, then each right not beneficially owned by such beneficial owner will entitle its holder to purchase, at the rights then-current exercise price, shares of the company’s common stock having a market value of twice the rights then-current exercise price. In addition, with certain exceptions, if after any person or group has become a beneficial owner of 15% or more of the company’s common stock, the firm becomes involved in a merger or other business combination, each right will entitle its holder to purchase, at the rights then-current exercise price, common shares of the acquiring company having a value of twice the rights then-current exercise price.