Bloomberg News

Roche Extends $44.50-a-Share Hostile Takeover Bid for Illumina to March 23

February 27, 2012

Roche Holding AG (ROG) said its $5.7 billion hostile offer for Illumina Inc. (ILMN) is attractive because the maker of gene-mapping tools faces increasing competition that makes the U.S. company’s growth prospects less certain.

Prices for gene-sequencing machines are under pressure and governments are cutting funding for Illumina’s academic customers, so sales may not expand as quickly as the San Diego- based company has forecast, Roche said in a presentation to Illumina investors that it filed today with the Securities and Exchange Commission. Roche also today extended the $44.50 a share offer until 6 p.m. New York time on March 23 after failing to win over Illumina shareholders.

The Basel, Switzerland-based drugmaker is wooing the stockholders after Illumina rebuffed its approaches. The stock has traded above the offer price since Roche announced the proposed acquisition Jan. 25, signaling investors expect a higher bid. Willingness to wait follows a pattern Roche Chairman Franz Humer and Chief Executive Officer Severin Schwan used in previous hostile bids for Ventana Medical Systems Inc. and Genentech Inc.

“They’ve shown previously that they’re quite patient,” Karl Heinz Koch, a Zurich-based analyst for Helvea SA, said by phone today. “In the case of Ventana, they extended the bid several times. I have little doubt they will eventually increase, but of course they don’t want to jump the gun.”

‘Opportunistic’ Offer

Illumina rejected the offer, which had been set to expire at midnight New York time Feb. 24, as “grossly inadequate” and “blatantly opportunistic.” At the time of the offer, Illumina’s stock had fallen 46 percent in the previous 12 months.

Still, new products announced in the past two months from Oxford Nanopore Technologies Ltd. and Life Technologies Corp. (LIFE) may hurt Illumina, Roche said in today’s filing, citing analyst reports. Illumina is also more optimistic about its own business than analysts are, Roche said.

Illumina shareholders tendered about 102,165 of the 122.3 million shares outstanding, Roche said.

“An extremely low number of shares have been tendered, consistent with our view -- and that of our stockholders -- that Roche’s offer does not reflect Illumina’s unique leadership position, business performance and future prospects,” Illumina said in a statement today.

Diagnostic Products

Buying Illumina would expand Roche’s diagnostic products, potentially allowing the company, the world’s biggest maker of cancer drugs, to better target its medicines to individual patients. Illumina will introduce a machine capable of scanning a person’s complete DNA within a day by the end of this year, the company said Jan. 10.

Illumina gained less than 1 percent to $51.40 at the close in New York. The shares have lost 26 percent in the past 12 months.

Illumina bolstered its takeover defenses after Roche’s offer. The company put in place a so-called poison-pill, granting investors the right to buy shares at half price, which would dilute Roche’s stake in Illumina. The company also outlined a “golden parachute” compensation plan for its executives if they lose their jobs within two years of an acquisition.

Besides soliciting shares directly from stockholders, Roche plans to nominate six candidates for election to Illumina’s board at the company’s annual meeting this year.

Purchasing Slowdown

The shares plunged 32 percent on Oct. 7 after the company said there had been an “unprecedented slowdown” in purchasing by customers. Illumina sells sequencing equipment to research laboratories, which have cut spending because they’re not sure of the level of government funding they’ll receive.

Roche’s bid fails to recognize the growth potential from the company’s 60 percent share of the next-generation genetic sequencing market, Illumina said.

In June 2007, Roche offered $75 a share for Ventana, which agreed to sell in January 2008 after Roche raised the bid 19 percent to $89.50. In March 2009, the Swiss drugmaker bought the 44 percent of Genentech it didn’t already own for $46.8 billion. Roche proposed $89 a share in July 2008, and then began a hostile tender offer at the reduced price of $86.50. The company then raised the bid twice, to $95 a share, to win support from Genentech’s board.

To contact the reporter on this story: Naomi Kresge in Berlin at nkresge@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net


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