In response to the recent extension of Roche Holdings‘ (RHHBY) acquisition bid for Illumina (ILMN), the latter urged its shareholders to decline the offer as it considers this offer to be grossly inadequate.

In its second 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. Currently, Illumina’s shares are trading at $50.69.

Details of the Request Letter

Illumina drew attention to its leading position in the global next-generation sequencing market where it has a 60% 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 during which 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

Roche had announced its bid to acquire all shares of Illumina for $44.50 per share (aggregate value $5.7 billion) in cash in January. 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. However, the company reiterated all other terms and conditions.

This 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.

Presently, Illumina and Roche both retain a short-term Zacks #3 Rank (Hold) which also corresponds to our Neutral recommendation over the long term.

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