Illumina Continues to Reject Roche

In February, I wrote that Roche could be in for a lengthy battle if it wants to acquire the gene-sequencing specialist Illumina. And indeed, the battle is still raging on. Here’s an update on some of the latest developments.

At the end of March, Roche increased its bid from $44.50 to $51 per share, but Illumina remains dissatisfied and continues to dub the bid as opportunistic and undervaluing the company. Throughout April, Illumina has continued to send letters to shareholders (the most recent being sent on 9 April)  urging them to reject the offer. According to Illumina, the company’s revenue streams are being increasingly driven by non-research uses that have the potential to more than double the size of Illumina’s addressable market from $4 billion to over $8 billion

In Illumina’s latest letter to shareholders, the Institutional Shareholder Services is also quoted as saying, “With the lack of serious competition in the near future, and the vast potential for sequencing that is already starting to appear, the board should rightfully be concerned about unnecessary truncation of value by selling the company at too low a valuation of its future.”

On the other side of the fence, however, Roche has spent the first part of April making its own case to Illumina’s shareholders to convince them of the benefits of the acquisition. In particular, Roche has questioned Illumina’s aforementioned growth prospects.

“Illumina has continually made a number of qualitative statements regarding the potentially large market for its products in emerging markets and industrial end-markets. However, the company has yet to produce any quantifiable evidence or projections to reassure shareholders when or how this growth will be realized,” explained Roche’s CEO, Severin Schwan, in a letter to Illumina shareholders.

In a separate statement, Scwan also added, “Roche’s increased offer is highly attractive. By not engaging with Roche, Illumina reinforces the notion that its Board and management are determined to preserve their positions rather than maximize shareholder value.

Although the situation appears to be stale mate, a turning point could be just around the corner. On 18 April, Illumina’s board of directors will hold their annual meeting. As a current shareholder of Illumina, Roche has nominated several candidates for election to the board, which, if successful, would result in Roche-nominated directors comprising a majority of the Illumina board.

Understandably, the most recent letters from both companies have focused on persuading shareholders to vote in their favour. Which will the voting go? We’ll have to wait and see. In an article by Reuters,  shareholders have said that they do not expect Roche to get enough votes to appoint six new board members. However, they may receive enough votes to nominate four board members, which would force Illumina to “come to the negotiating table”.