Roche Makes $5.7B Hostile Takeover Bid for Illumina

1/25/12Follow @xconomy

San Diego-based Illumina, the market leading maker of DNA sequencing instruments, has just made it through a rough year, and now it may be entering its final chapters as an independent company.

Illumina (NASDAQ: ILMN) said last night that it has gotten an unsolicited (that’s polite PR language for hostile) takeover bid from Switzerland-based Roche. The offer values Illumina at $44.50 a share, or about $5.7 billion. That represents about an 18 percent premium over Illumina’s closing stock price of $37.69 on Tuesday. Roche said it plans to run a “tender offer” in which shareholders are being asked to tender their shares at its price until Roche has corralled enough shares to take control. Illumina, in a brief statement, asked shareholders to do nothing until the board makes a recommendation.

The offer must look like a screaming low-ball offer to Illumina shareholders, given that the company traded as high as $79.40 a share in the last year. But Illumina has gone through a rough stretch of late, as it fell short of its quarterly sales goal last fall, and made layoffs, as customers worried about potential federal research budget cuts, and competitors like Life Technologies, Complete Genomics, and Pacific Biosciences all fought hard for their share of a fast-moving market for sequencing tools. Still, Illumina is the dominant player in the market, and the DNA sequencing market is expected to grow as machines get faster and cheaper, making them available to many more scientists. The market is expected to grow from $1.2 billion in 2009 to more than $3.6 billion by 2014, according to figures from Scientia Advisors.

Given the opportunity, I’ve got to imagine the Illumina board is seething at this unsolicited takeover bid. It sounded like it in last night’s terse, but diplomatic, statement.

“Consistent with its fiduciary duties and responsibilities, and in consultation with its financial and legal advisors, Illumina’s Board of Directors will thoroughly review Roche’s proposal and make a recommendation to stockholders in due course that the Board believes is in the best interests of Illumina stockholders. Illumina stockholders are advised to take no action at this time pending the Board’s recommendation.

Analysts at Bernstein, quoted by Dow Jones, didn’t sound so excited about the deal either. Roche has sought to become a diversified healthcare giant that makes drugs and diagnostics, and while high-powered genetic instruments like those from Illumina are primarily research tools today, many in the industry believe they will have more value in the future as diagnostic tools.

“Large scale genomics may, or may not, have an important role in clinical practice in the next 10 to 15 years, but Roche feels it needs to have the option to play just in case the hype eventually becomes reality,” is how analysts at Bernstein interpreted the Swiss company’s move Wednesday, according to Dow Jones.

Quintin Lai, an analyst with Robert W. Baird who covers Illumina, said he believes Roche is mostly interested in using Illumina tools for making products to diagnose cancer. “We think Roche covets the clinical diagnostics potential that ILMN’s technology provides,” Lai wrote today in a note to clients. “We have noted that next-generation sequencing is attracting strong interest in the area of cancer diagnostics and therapy selection.”

Illumina shares shot up 45 percent, all the way to $54.63, in speculation that takeover bids from Roche, or possibly another company, will run much higher. This will certainly be an interesting story to watch unfold over the coming weeks.

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