Roche has made a hostile move to acquire Illumina for $5.7 billion in cash. The Swiss drugmaker says it made the bid after Illumina, a provider of gene-sequencing technology, refused to participate in “substantive discussions” about a friendly acquisition.
“We remain willing to engage in a constructive dialogue with Illumina to jointly develop an optimal strategy for maximizing the value of our combined business,” Roche CEO Severin Schwan said last week when announcing its offer to buy shares from stockholders without Illumina’s blessing. To allow time to review the offer, Illumina’s board has responded by adopting a shareholder rights plan, “designed to deter coercive or otherwise unfair takeover tactics.”
Illumina dominates the market for next-generation sequencing, followed by Life Technologies and Roche Diagnostics, according to the research firm Frost & Sullivan. After restructuring and cutting 200 jobs late last year, Illumina anticipates reporting 2011 revenues of nearly $1.1 billion.
Roche Diagnostics wants to combine Illumina with its Applied Science unit and move the business’s headquarters from Germany to Illumina’s home in San Diego. The acquisition would add to Roche’s position in genetic and genome sequencing and microarrays. At the same time, Roche envisions that it could help accelerate the transition of DNA sequencing into clinical and routine diagnostic applications.
“The proposed acquisition will strengthen Roche’s current offering in the life science market by providing complementary solutions to our current portfolio,” says Daniel O’Day, chief operating officer of Roche Diagnostics. The combined offering, he adds, would “help enable the discovery of complex new biomarkers, improving drug discovery and the selection of patients most likely to respond to a targeted treatment.”
Roche’s $44.50-per-share offer is a 64% premium over Illumina’s stock price on Dec. 21, 2011, the day before rumors about a potential deal began. Since then, the company’s stock price has risen about 40%.
Although Roche’s bid is a bit high, “a premium is justified,” Mizuho Securities USA stock analyst Peter Lawson told clients in a report. He bases his assessment on Illumina’s market dominance and its potential synergies with Roche’s life science, diagnostic, and pharmaceutical businesses, as well as prospects for “long-term sustainable growth.”