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Illumina investors expect only modest Roche boost

by Andrew Bulkeley | Published April 10, 2012 at 2:06 PM

With three proxy firms advising shareholders against its hostile approach, Swiss drug giant Roche Holding AG likely has no choice but to raise its offer to win over recalcitrant Illumina Inc. shareholders. But investors are betting on only a modest sweetener.

In midday trade Illumina shares were down 46 cents or 0.87% to $52.16, just sightly higher than Roche's current offer of $51 per share for the gene sequencing specialist.

Glass, Lewis & Co. LLC on Tuesday, April 10, advised Illumina shareholders to vote against a handful of Roche proposals at the target's April 18 general meeting. That follows similar recommendations from fellow proxy services Institutional Shareholder Services Inc. and Egan-Jones Ratings Co.

"We find no cause for shareholders to support Roche's candidates, nor do we find any reason for shareholders to accept such an expeditious engagement as appropriate in the context of multi-year lows in share price and valuation for Illumina," Glass Lewis wrote in its recommendation.

Roche on Jan. 25 uncovered an unexpected $44.50 per-share offer for Illumina and sweetened the deal to $51 at the end of last month amid staunch resistance from Illumina. In addition to cash, Roche is asking Illlumina shareholders to expand the target's board to 11 members from nine and appoint six nominees to give it a majority at the shareholder meeting.

In a Friday letter to Illumina investors, Roche even indicated it would be willing to go higher if it could lure the target's board to the bargaining table: "We remain willing to consider additional value if given the opportunity to enter discussions and perform due diligence."

The Basel-based suitor wants to combine Illumina's gene sequencing technology, which can identify the DNA of tumors, with its cancer-fighting drugs and global distribution network.

Meanwhile Illumina, of San Diego, accuses Roche of taking advantage of a dip in its share price, which hit a 52-week low in December of $25.57 following a year high of $79.40 last summer.

Most analysts expect Roche to come out with a higher offer -- the company twice raised hostile approaches at the last minute to win agreed deals.

"I guess what Roche is going to be doing in the next few days is finding out from large investors what price it would take to have them put pressure on the Illlumina board of directors to let them do due diligence," said Vontobel Research analyst Andrew Weiss.

But investors and analysts predict that eventually Roche will snare its target. The Swiss drug company normally doesn't rescind a public offer," wrote Kepler Equities SA analyst Martin Vögtl in a note. "Despite the current headwind from the Illumina board, Roche will likely take over the diagnostics company in the end."

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Illumina investors expect only modest Roche boost

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