Roche's formal tender offer, launched Jan. 27 after three months of private and public deal posturing, was rejected by the Illumina board, which called the bid grossly inadequate and opportunistic.

Illumina develops tools for genetic analysis. Roche successfully pursued a hostile approach in 2008 to acquire Ventana Medical Systems Inc., a tissue analysis company, and also pushed through a contested buy-in of Genentech Inc. the prior year.

Illumina has a poison pill and a staggered board. Its last annual meeting was held in May. Roche has taken action to run a proxy fight to replace board members and expand Illumina's nine-member board to 11 members but has said it seeks to negotiate a friendly deal.

The $44.50 per share cash offer represents a 43% to 64% premium to Illumina's share price based on various calculations of its trading range in the several months before the public announcement of the offer in late January.

Roche has a clear strategic interest in Illumina, increasing the likelihood that a deal will happen. There is nothing in Illumina's rejection of the Roche offer that suggests the company is opposed to a deal at the right price, a risk arbitrageur said. Given Roche's behavior in the Genentech buy-in and other deals, it's safe to conclude that it is not going to walk away, having made its approach public.

Another arb agreed, saying Illumina seems open to a negotiation and that the combination makes good sense for the target. He predicted a deal within the next few months.

Price targets for Illumina run from $55 to $70 per share. Illumina shares traded Wednesday at $52.50, at a premium of $8, or 15%, to the current, rejected offer. The market is looking for a deal at around $60 per share, which would be a premium of about 66% to the share price before the bid was launched, an arb said.

The value of Illumina is an open question, especially in Roche's hands, another arb said, so the possibility of a standoff resembling the one that occurred with Genentech cannot be disregarded.

Unlike the case of Genentech, though, another bidder could alter the outcome, but Roche is likely to press its case with Illumina shareholders before any increase in the offer surfaces.