The $5.7 billion takeover battle initiated by Roche for Illumina is continuing to follow the expected course for hostile bids of this nature. Yesterday Illumina released its expected statement that its board of directors rejected Roche’s offer, and that was followed by Roche announcing that it was disappointed with this outcome.
No one expected anything different from these industry giants after Roche went public with its hostile bid on January 25. And anyone who’s covered M&A news would find even the same rhetoric being used by both sides to explain their respective decisions to agree or not to agree. Illumina states that the proposal grossly undervalues the company’s current status as well as future potential. Roche of course says that it believes its offer is full and fair.
Illumina was trading at $37.685 the day before Roche said that it would pay $44.50 per share, a roughly 18% premium. At the time of going public, Roche pointed to rumors that started on December 22 about this deal. Illumina was trading at $27.17 on December 21, 63.78% below Roche’s bid. As any acquisition tug of war would do, Illumina’s stock has been valued above Roche’s offer since the firm came forward. It closed yesterday at $51.80 per share.
In Illumina’s response to Roche, made yesterday, the firm called Roche out for being blantantly opportunistic. “Our board has noted your decision to opportunistically time your offer to a temporary dislocation in our stock price,” Illumina’s William H. Rastetter, Ph.D., chairman, and Jay T. Flatley, president and CEO, wrote in their letter to Franz Humer, Ph.D., Roche’s chairman.
Illumina justified this statement by saying “Purchaser’s $44.50 per Share proposal is $34.90 below Illumina’s 52-week high of $79.40. Thus, when the closing stock price was $37.69 on January 24, 2012, the board believes that Roche acted to take advantage of Illumina’s depressed stock price levels in its attempt to transfer the significant future value of Illumina from its stockholders to Roche and its stockholders.”
For the first half of last year, Illumina did indeed trade between $60 and $80 per share. Its value started to decline in the second half of 2011 and reached an all-time low of $26.90 in December. Roche first approached Illumina in November 2011, just weeks after Illumina announced third quarter 2011 results reflecting a softness in research funding. Its shares were trading near a two-year low due to a short-term dislocation in the stock price.
Illumina believes its R&D cutback will be temporary. “As research funding stabilizes through 2012 and the application of sequencing continues to broaden, the board believes that Illumina is poised to continue to deliver strong growth rates in Illumina's existing markets. In addition, the board believes that Illumina’s ongoing technology development efforts will give Illumina significant potential to accelerate growth further in the years ahead.”
Roche may have to raise its offer to about $60 per share to win Illumina over. The company, which has a sequencing unit of its own in 454 Life Sciences, is trying to gain a stronger foothold in this space. While 454 is among Illumina and Life Technologies as the big three in sequencing instrumentation, it may be feeling a little left out since both Illumina and Life Tech announced major advances, i.e., one-day sequencers, last month.
It seems unlikely that any other companies will try to enter the fray and start a bidding war. Roche says that it will nominate candidates for election to Illumina’s board of directors and propose certain other matters for the consideration of Illumina’s shareholders at Illumina’s 2012 annual meeting.
Illumina has put in place a poison pill to try and block Roche’s takeover. The company also outlined a “golden parachute” compensation plan for its executives if they lose their jobs within two years of an acquisition, according to a regulatory filing, Bloomberg reports. Flatley would be paid double his annual salary plus a bonus, stock, and other benefits valued as of January 27 at $10.7 million. Five other executives would receive benefits valued from $2.6 million to $3.2 million, Bloomberg adds.