Illumina said investors who hold its shares on Feb. 6 will be granted one preferred stock purchase right as a dividend for each common share, though the right will only be valid if an investor buys 15% of the company. The move is meant to make an acquisition more expensive by handing out new shares in the target.
Analysts expect Roche will sweeten its $44.50 per share offer and eventually strike an agreed deal. "It's part of the usual shenanigans you have in a hostile takeover. Everyone throws their lawyers at each other," Vontobel Research analyst Andrew Weiss said. "Eventually they'll find amicable terms."
Roche unveiled its unexpected bid Wednesday after it said Illumina executives resisted its advances. San Diego-based Illumina makes machines that use blood or tissue samples to identify a person's genetic makeup, a procedure known as gene sequencing.
The drug giant wants to integrate Illumina into its own genetic analysis division to broaden its offering of personalized cancer therapies. Defining a tumor's DNA can lead to more effective treatment.
Although suitors such as Germany's Siemens AG or General Electric Co. could enter the bidding, analysts believe they would have trouble keeping up with Roche because the Big Pharma company can squeeze the most value out of the acquisition by offering both analysis and treatment.
"The Illumina board has taken this action to ensure that our stockholders receive fair treatment and protection in connection with any proposal or offer to acquire the company, including the proposal announced by Roche, and to provide stockholders with adequate time to properly assess any such proposal," Illumina CEO Jay Flatley said in a statement.
In addition to the approach, Roche has said it will also propose its own appointments to Illumina's board at the next shareholders' meeting in an attempt to gain a majority. No date has yet been set for the meeting.
But Illumina's charter and bylaws have anticipated such a move, stipulating staggered board elections that allow only a portion of the board to be replaced at each shareholders' meeting. Roche likely will also ask shareholders to amend the plans to remove the staggered board, though such a move would require two-thirds approval.
Analysts have said Illumina's 52-week high of $79.40 per share suggests the company is worth more than the current offer and investors Wednesday pushed the stock up 46%, to $55.15. The shares weakened a bit on Thursday, falling 2%, or $1.11, to $54.04 in morning trade.
Roche was off Sfr0.60 at Sfr159.40 ($173.90) in afternoon Zurich trade.
Roche has prevailed in several past hostile takeover bids. In 2008 it won over shareholders of Tucson, Ariz., tissue analysis company Ventana Medical Systems Inc. by sweetening an unwanted $3 billion bid to $3.4 billion.
That same year it convinced minority shareholders of San Francisco's Genentech Inc. to hand over the 44% stake it didn't already own by sweetening its bid to $46.8 billion from an initial $43.7 billion.
Greenhill & Co. and Citigroup Inc. are providing financial advice to Roche in its pursuit of Illumina, while a Davis Polk & Wardwell LLP team led by Arthur F. Golden and Marc O. Williams and including Brian Wolfe, Christina Henderson and Sabrina L. Ursaner is serving as legal counsel.
Goldman, Sachs & Co. and Bank of America Merrill Lynch are Illumina's financial advisers. Dewey & LeBoeuf LLP is the company's legal counsel with a team led by partners Rick Climan, Keith Flaum and Frederick Kanner, of counsel.
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