The Takeover Tug-of-War
A day after Roche went public with its offer, on January 26, Illumina placed a poison pill shareholder rights plan in place that would be triggered should any party own more than 15% of the company and allows directors to deflect offers for a company. Currently, Capital Research Global Investors, Baillie Gifford & Co, Sands Capital Management, Morgan Stanley Investment Management, and Jennison Associates are Illumina’s five biggest shareholders. They collectively own about 45% of outstanding shares, according to Thomson Reuters data.
Roche responded to the poison pill move by nominating a slate of directors for election to Ilumina’s board, saying it intended to win control of the board as four directors’ terms expired at the company’s 2012 annual meeting.
On February 7, Illumina issued a formal rejection to Roche. Characterizing the offer as “grossly inadequate” and its timing “blatantly opportunistic,” Illumina’s chairman William Rastetter and CEO Flatley said that the offer did not “reflect Illumina’s strong platform of new products and pipleline.” They said that its board unanimously determined that the $44.50 per share cash offer “dramatically undervalues Illumina and is contrary to the best interests of Illumina’s stockholders. Accordingly, the board recommends that stockholders not tender any of their shares to Roche.”
On February 14, a group of Illumina shareholders filed a putative class action against Illumina alleging that its directors adopted the poison pill plan on the advice of Goldman Sachs. Because of a complex derivative transaction between Illumina and Goldman Sachs, Goldman Sachs reportedly stands to lose hundreds of millions if the Roche offer was accepted, the suit alleges. Goldman Sachs thus had incentive to advise Illumina to reject the offer, even though the value of the company’s shares would have increased from the sale to Roche, the case states.
“The plaintiffs allege that the defendants breached their fiduciary duties by, among other things, refusing to engage in negotiations and/or substantive dialogue with Roche, which resulted in the defendants failing to get the best price for Illumina shareholders,” commented the law firm retained by Illumina shareholders, Gilman Law.
Not above using scare tactics, Roche has also told Illumina that due to price pressure on sequencing machines and the prospect of government funding cuts for academic labs—Illumina’s traditional customer base—sales may not expand as quickly as Illumina thinks.
Additionally, Roche can certainly hang in for the long run when it goes after a company, upping the ante considerably. In 2007, Roche offered $75 a share for Ventana Medical Systems, and five months later, in January 2008, Ventana agreed to sell after Roche raised its bid to $89.50. Also, in March 2009, Roche completed its buyout of the roughly 44% of Genentech it didn’t already own for $46.8 billion. Roche had originally offered $89 a share in July 2008, reduced the price to $86.50, and then raised its bid twice, finally closing at $95 a share.