Illumina (ILMN) continues to remain apathetic to Roche Holdings‘ (RHHBY) acquisition bid. In response to the recent increased takeover offer by Roche, Illumina issued a letter to the Chairman of Roche clearly declining the company’s bid as it still considers the offer to be grossly underpriced.
Last week, subsequent to Illumina’s second request letter to its shareholders justifying the earlier Roche bid as undervalued, Roche increased its offer price, for acquiring all the shares of Illumina, to $51.00 from the previously declared $44.50 a share. However, the company reiterated all the other terms and conditions.
In its request letter, Illumina precisely explained its current prominent position in the genomics and DNA sequencing technology industry with superior operational performance and financial success, which the company believes is worth more than the Roche offer.
Illumina drew attention to its leading position in the global next-generation sequencing market where it holds 60% market share. Also, the company estimates that over 90% of all sequencing output across the world is produced on Illumina instruments.
In addition to that, the company also noted its steady performance over the past decade where it had consistently outperformed analyst estimates of revenues and EPS. While revenues increased at a 10-year CAGR of 83%, non-GAAP EPS increased at a 5-year CAGR of 26%. Moreover, Illumina generated a 1,129% return to its stockholders compared to a mere 16% gain in the S&P 500 during the 10-year period.
Roche Bid
The tussle with Illumina dates back to January 2012 when Roche came out with its bid of $44.50 per share (aggregate value $5.7 billion) in cash. This offer was at a premium to the then prevailing share price ($37.69) of Illumina. Before this, Roche had made multiple efforts in the past to strike a deal with Illumina, but Illumina was never eager to participate in substantive discussions.
This led Roche to commence a tender offer to purchase Illumina’s outstanding shares. If the deal goes through, Illumina is expected to add life to Roche existing Applied Science business.
Earlier this month, Roche extended the time period of its hostile bid for the second time. The company has extended the tender offer to April 20, 2012, from the previously-extended date of March 23, 2012 and on March 28, 2012 the company also increased the offer price.
The extension of the tender offer expiry date was on the heels of Roche receiving a ‘second request’ from the Federal Trade Commission (FTC). The FTC is seeking additional information regarding the proposed deal.
Illumina’s rejection to the Roche’s revised offer price led to a 2.36% drop in its share price to $51.37, yesterday. However, the current bid price is still lower than the current traded price, which reflects the investors’ high aspiration about the company’s future prospects. Presently, Illumina retains a short-term Zacks #2 Rank (Buy). Over the longer term, we have a ‘Neutral’ recommendation on the stock.
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