Roche Makes Hostile $5.7B Offer for Illumina
Roche Holding AG (ROG) offered about $5.7 billion in cash for Illumina Inc. (ILMN) to bolster cancer-drug sales, the third time since 2007 the Swiss drugmaker has made a hostile bid for a U.S. company.
Roche proposed paying $44.50 a share for Illumina, 18 percent more than yesterday’s closing price. It will put the offer directly to shareholders after the San Diego-based company was “unwilling to participate in substantive discussions,” Roche said in a statement today.
Roche, the world’s biggest maker of cancer drugs, would gain technology for reading the genetic makeup of tumors, potentially allowing the company to offer treatment specific to individual patients. The Basel, Switzerland-based company prevailed in both of the previous unsolicited takeovers after increasing the initial offer price.
“The folks at Illumina are a very optimistic bunch,” said Dan Leonard, an analyst at Leerink Swann in Boston, adding that a rival bidder isn’t likely to materialize. “Their stock was nearly $80 seven months ago, so they’re probably anchored to an entirely different number.”
Roche fell 1 percent to 163 Swiss francs at 9:05 a.m. in Zurich, giving the company a market value of 141.5 billion francs ($152.5 billion).
Genentech
A takeover of Illumina would be Roche’s largest purchase since the $46.8 billion acquisition of Genentech Inc., completed in March 2009, according to data compiled by Bloomberg.
Illumina’s directors will review the offer and make a recommendation to shareholders in due course, the company said in a statement. Goldman, Sachs & Co. and Bank of America Merrill Lynch are acting as financial advisers to Illumina, and Dewey & LeBoeuf LLP is legal counsel.
Illumina rose 3.8 percent to $37.69 yesterday in New York trading. The stock has lost 46 percent in the past 12 months.
“We remain willing to engage in a constructive dialogue with Illumina to jointly develop an optimal strategy for maximizing the value of our combined business,” Roche Chief Executive Officer Severin Schwan said in the statement.
As head of diagnostics, Schwan led the company’s hostile takeover of U.S. diagnostics company Ventana Medical Systems Inc. Roche paid $3.4 billion for Ventana in 2008 after initially offering $3 billion in July 2007.
Roche will nominate candidates to Illumina’s board of directors to be considered at the company’s 2012 annual meeting, it said. Greenhill & Co. and Citigroup Inc. are Roche’s financial advisers, while Davis Polk & Wardwell LLP are providing legal advice.
Genetic Sequencing
Illumina has been in a race to develop the first machine to be able to parse the building blocks of life in a day, rather than weeks or months. It announced on Jan. 10 that it would market such a machine in the second half of this year. Illumina competes with Life Technologies, a Carlsbad, California company that announced it had reached the same goal on the same day. The current Illumina machines can sequence five human genomes in 10 days, according to the company.
The offer values Illumina at about 32 times analysts’ average 2012 profit forecast of $1.39 a share, according to data compiled by Bloomberg. Over the past two years, Illumina has traded at an average of 29 times forward earnings, the data show. Illumina traded at Roche’s offer price as recently as last September, before it scrapped its annual profit forecast on concern that research funding would be reduced.
The offer equates to about 50 times Illumina’s earnings in the 12 months ended Sept. 30, 2011. That compares with the 83 times trailing profit that Roche eventually paid for Ventana, according to data compiled by Bloomberg. Beckman Coulter Inc., an Illumina competitor, was sold to Danaher Corp. last year for $6.8 billion, or about 26 times profit, the data show.
Direct to Shareholders
Roche decided to go directly to shareholders after Illumina confirmed its lack of interest in a Jan. 18 letter, Chairman Franz Humer said in a response today to Illumina Chief Executive Officer Jay Flatley. There wasn’t substantive progress in efforts to negotiate a business combination, Humer said.
“This is a compelling offer and we are confident that your stockholders will find it extremely attractive,” Humer wrote in a Jan. 25 letter. “We hope that your board will now take the opportunity to negotiate a transaction that will allow your shareholders to realize this substantial value.”
Roche said the offer represents a 64 percent premium to Illumina’s closing price on Dec. 21, a day before speculation about a potential transaction boosted Illumina shares. On Dec. 22, Illumina advanced 7 percent to $29.07 in New York trading after Schwan told Bloomberg News in an interview that Roche would be ready to “seize” the right opportunity. Roche would consider a deal about the same size as its purchase of Ventana, he said.
Research Cuts
In October, the company announced a $15 million to $17 million restructuring plan because of concerns that government and academic institutions may reduce research funding, as well as uncertainty about the global economic environment.
With the Illumina offer, Roche is making the largest unsolicited bid for a life-sciences company since Valeant Pharmaceuticals Inc. offered $5.7 billion for Cephalon Inc. in March, according to data compiled by Bloomberg. Teva Pharmaceuticals Industries Ltd. Eventually acquired Cephalon.
Roche will hold a conference call from investors at 1 p.m. Central European time today.
To contact the reporter on this story: Jason Gale in Singapore at j.gale@bloomberg.net
To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net
Roche Makes $5.7 Billion Offer for Illumina in Hostile Bid
Gianluca Colla/Bloomberg
The Roche Holding AG logo sits on a sign outside the company's headquarters in Basel, Switzerland.
The Roche Holding AG logo sits on a sign outside the company's headquarters in Basel, Switzerland. Photographer: Gianluca Colla/Bloomberg
Jan. 25 (Bloomberg) -- Roche Holding AG, the world’s biggest cancer-drug maker, offered about $5.7 billion in cash for Illumina Inc. in a hostile bid to bolster research in the biomarkers of diseases that will yield better targeted therapies. Mark Barton and Caroline Hyde report on Bloomberg Television's "First Look." (Source: Bloomberg)
Roche Worker
Roche
Avastin is produced in a Roche laboratory. Avastin costs about $50 a dose compared with $2,000 for Lucentis. Lawmakers have been pressing Medicare to expand use of Avastin for the potential savings.
Avastin is produced in a Roche laboratory. Avastin costs about $50 a dose compared with $2,000 for Lucentis. Lawmakers have been pressing Medicare to expand use of Avastin for the potential savings. Source: Roche
Roche Makes $5.7 Billion Offer for Illumina in Hostile Bid
Gianluca Colla/Bloomberg
The Roche Holding AG's headquarters in Basel, Switzerland.
The Roche Holding AG's headquarters in Basel, Switzerland. Photographer: Gianluca Colla/Bloomberg
Roche Holding AG 's CEO Severin Schwan
Gianluca Colla/Bloomberg
Severin Schwan, chief executive officer of Roche Holding AG.
Severin Schwan, chief executive officer of Roche Holding AG. Photographer: Gianluca Colla/Bloomberg
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