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Reinforcing their lines
April 2012
by Kelsey Kaustinen  |  Email the author


ZURICH—Facing a continuing uphill battle in its effort to acquire Illumina Inc., Roche announced earlier this month that it has other alternatives in mind if its proposed takeover fails.
"Roche and Illumina both stand to benefit from a rapid merger. However, this is a sector where we have other options should the transaction fail over price," Franz Humer, chairman of Roche, said at the company's annual shareholder meeting.
Roche's acquisition efforts, which began in January, have not progressed very far as of yet. Illumina's board of directors rejected Roche's $5.7 billion offer and cautioned its shareholders not to tender their shares to the offer, even going as far as enacting a "poison-pill" stock defense. The offer was due to expire on Feb. 23, and on Feb. 27, Roche announced that approximately 102,165 shares had been tendered to the offer, adding that it had extended its offer to March 24 at midnight.
Illumina announced on March 19 that it had filed definitive proxy materials with the U.S. Securities and Exchange Commission in connection with its 2012 annual meeting, which is set to take place on April 18. In addition to announcing the meeting's date, Illumina also urged its shareholders once again to reject Roche's offer. Illumina's annual meeting has the potential to be a turning point for the acquisition saga if Roche's nominees are elected to Illumina's board of directors and Roche's proposals are approved, allowing it to gain majority control of Illumina's board.  
On March 20, Roche responded with an announcement that it too had filed its definitive proxy statement and had sent a letter to Illumina's shareholders from Severin Schwan, CEO of the Roche Group, encouraging them to accept its acquisition offer.
The letter reiterated the benefits of Roche's offer, in terms of the immediate value and the fact that, according to Roche, the offer's value surpasses what Illumina would provide for its shareholders as a standalone company. Schwan also added that Illumina's outlook is uncertain, as it "will continue to face revenue headwinds due to uncertainty over government funding levels, corresponding hesitation to spend by institutional/academic customers, competition from innovative next- generation sequencing devices and rapidly evolving novel sequencing technologies." The company, Schwan noted, "recently issued its lowest revenue and earnings growth guidance in the past five years." In addition, he noted that without the offer Roche has on the table, Illumina's stock—which has surpassed Roche's offer price of late—would likely be seeing considerably lower prices.  
The March deadline came and went, and subsequently was extended to April, with only a little more than 144,000 shares tendered at that point. Shortly thereafter, Roche increased its offer to $51 per share from the original $44.50 per share.  
Illumina's board, after a short deliberation, rejected that offer as "grossly inadequate" as well and reaffirmed to shareholders the opinion that they should not tender their shares to Roche.  
From the looks of things, Roche's acquisition attempt is likely to turn into a repeat of Roche's acquisition process with Ventana, which took seven months and a 19-percent increase on the original offer to complete. Analysts expect that the Illumina offer will similarly require a larger price tag if it is to be completed. If Illumina's shareholders aren't swayed by Roche's offer and do not vote to approve of Roche's board proposals and nominees at the annual meeting, the process will likely go back to being a waiting game.  
Analysts acknowledge that there are definitely other players in the gene sequencing section of the market, including Ion Torrent of Life Technologies and Oxford Nanopore Technologies, but Illumina remains the market leader.
"There are alternatives, but not of Illumina's quality," Karl-Heinz Koch of Helvea said in a press release.  
Whether or not Roche is right about Illumina's future prospects remains to be seen, though Illumina has had encouraging development of late in its sequencing technology. Early January saw the release of its HiSeq 2500, a next-generation sequencing system that will allow for whole-genome sequencing in roughly 24 hours, and February saw the launch of its Cancer Analysis Service. Illumina introduced a new cancer panel for its MiSeq system, the TruSeq Amplicon Cancer Panel, in March, which enables accurate sequencing of hundreds of cancer loci, even in formalin-fixed paraffin embedded samples. The company also added the Broad Institute to its Illumina Genome Network.
Martin Voegtli of Kepler Capital Markets said he does not expect Roche "will walk away from Illumina," adding that if Illumina's shareholders "notice that they can't get much more, the pressure will increase to examine a combination of the Roche and Illumina businesses."
Neither company responded to requests for further comments.
Code: E041216



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