Roche Holding AG (ROG) extended its $5.7 billion hostile takeover offer for Illumina Inc. (ILMN) for a second time, setting up a showdown next month at the annual meeting of the U.S. maker of gene-mapping tools.
Shareholders will have until 6 p.m. New York time on April 20 to tender their stock at $44.50 a share, Basel, Switzerland- based Roche said in a statement today. The offer had been set to expire at 6 p.m. New York time March 23. Illumina shares are trading 13 percent above the bid, indicating stockholders expect a higher price.
Investors at Illumina’s April 18 annual meeting will decide whether to oust four directors and replace them with Roche nominees, which would clear the way for talks between the two sides. Rejection of Roche’s choices wouldn’t necessarily mean the end of the bid. San Diego-based Illumina today dismissed the offer as “grossly inadequate” and refused to negotiate, and urged shareholders to re-elect board members.
“This could drag on for a long time,” Birgit Kulhoff, a Zurich-based fund manager at Rahn & Bodmer Co. “Maybe at some point in time Roche will increase the offer slightly, but definitely in my view not above $50, and even that is not guaranteed.”
Illumina fell less than a percent to $50.42 at 9:54 a.m.
The company sent a letter to shareholders today saying Roche’s offer wasn’t in the shareholders’ interests.
Shareholders tendered about 144,310 Illumina shares by the March 23 deadline, Roche said. That’s equal to about 0.1 percent of Illumina’s stock outstanding.
“Illumina’s board of directors continues to believe that Roche’s offer is grossly inadequate, and that Illumina is positioned to create far more value than Roche has offered,” Illumina said in a statement today. “Our stockholders clearly agree.”
Fewer than 10 percent of Illumina’s shares are held by arbitragers, traders who speculate on mergers and acquisitions, Daniel Brennan, a New York-based analyst at Morgan Stanley (MS), wrote in a March 19 report. Illumina, in announcing the date for the annual meeting last week, said only shareholders who owned the stock as of March 8 would be allowed to vote. Thus, if Roche raises the bid before the meeting, and attracts more arbitragers to buy the shares, those holders won’t be able to vote at the meeting, he said.
Roche announced its hostile bid Jan. 25, going directly to shareholders after Illumina rebuffed its approaches.
Roche Chairman Franz Humer and Chief Executive Officer Severin Schwan have shown patience in winning over acquisition targets. They waited seven months to raise their 2007 hostile bid for Ventana Medical Systems Inc. (VMSI), and seven and a half months before they increased a 2008 offer for the 44 percent of Genentech Inc. that Roche didn’t already own.
Illumina would add to Roche’s offering of diagnostic products and potentially allow the company, the world’s biggest maker of cancer drugs, to better target medicines to individual patients. The company 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.
Besides soliciting shares directly from stockholders, Roche nominated six candidates for election to Illumina’s board at the annual meeting. The nominees, if chosen, would replace the four directors Illumina has nominated for re-election, and would expand the board by two, giving Roche a majority.
Roche has said that it will take a decade for Illumina’s gene-sequencing business to “reach the clinic in a meaningful way,” Kulhoff said, citing a meeting with Chief Financial Officer Alan Hippe. “If they do not get Illumina, they still have enough time to look at other opportunities or even develop something themselves.”
Illumina recommended Feb. 8 that shareholders reject the initial offer, which Chairman William Rastetter and Chief Executive Officer Jay Flatley said was “blatantly opportunistic.” At the time of the initial offer, Illumina’s stock had fallen 46 percent in the previous 12 months.
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.
Roche rose less than 1 percent to 158 Swiss francs in Zurich.
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