Roche Comments May Mean No Illumina Deal in Near Term

Roche Holding AG Chairman Franz Humer may have put a lid for now on a year’s worth of speculation by telling a Swiss newspaper that a Roche deal to buy U.S. genetics company Illumina Inc. is off the table. Illumina shares fell the most in 15 months.

The interview “discounts Roche’s intent to purchase Illumina medium-term,” Ross Muken, a New York-based analyst for ISI Group LLC, wrote in a note to investors late yesterday. “We do not believe this precludes Roche from returning to Illumina as a targeted asset in the future and does not diminish its attractiveness as a potential M&A target.”

The two companies’ names have been linked since speculation about an acquisition first surfaced in December 2011. Illumina spurned Roche’s hostile bid in January 2012, and also rejected a sweetened, $6.7 billion proposal. The Swiss company walked away in April after investors held out for an even higher offer.

While Roche was aware that Illumina was sending conciliatory signals, no deal resulted, Humer said, according to an interview published yesterday in SonntagsZeitung.

“Illumina is definitively off the table,” Humer said, the newspaper reported. “The other side wasn’t ready to retreat from their totally excessive price demands. Roche doesn’t do acquisitions that don’t create added value. We have self-discipline.”

Stock Drops

Laura Trotter, an Illumina spokeswoman, said in an e-mail that the San Diego-based company had no comment on Roche.

The U.S. company announced its own deal today, saying it would pay $350 million plus as much as $100 million in milestone payments for Verinata Health Inc., a maker of prenatal tests for Down syndrome and other chromosomal abnormalities.

Illumina fell 7.1 percent to $50.90 at the close of New York trading, its biggest one-day decline since Oct. 7, 2011. The stock had gained 93 percent in the past year through Jan. 4. Roche offered to buy the company at $44.50 a share and then $51 a share last year.

Illumina would have been a “nice-to-have” deal, not a “must-have” asset, SonntagsZeitung quoted Humer as saying.

History shows a pattern of Roche acquiring “emerging or nascent” gene-sequencing assets, such as NimbleGen Systems Inc. and 454 Life Sciences, Muken wrote, while the only time it bought a market leader close to Illumina’s stature was in its 2008 purchase of Ventana Medical Systems Inc. The ISI analyst has a “market weight” rating on Illumina’s shares.

Roche sees other alternatives for adding gene-sequencing technology, SonntagsZeitung cited Humer as saying.

Agefi Reports

Illumina Chief Executive Officer Jay Flatley said in September that Roche, by making its bid public, stopped the gene-sequencing company’s board from discussing what price would be acceptable. Directors didn’t want to openly talk about a sale amount after Roche’s hostile bid was made public in January because they would have needed to disclose those discussions, he said.

A Swiss newspaper, L’Agefi, reported last month that the companies had agreed to a $66-a-share deal. Illumina asked for $68 a share on Dec. 28 and $75 a share on Jan. 3, L’Agefi reported today on its Twitter feed, without saying where it got the information.

Alexander Klauser, a spokesman for Roche, repeated today that Illumina is off the table. Klauser declined to comment on the prices L’Agefi cited.

Shareholder Letter

An offer of more than $65 a share would have been in the interest of shareholders and Illumina’s board should have disclosed it if it was made, Lucien Selce, chairman of Vista Capital Management SA in Geneva, wrote in a letter to Illumina Chairman William H. Rastetter today. Selce also sent the letter to Bloomberg News.

Vista Capital, which holds more than 300,000 Illumina shares, is unclear on the board’s decision-making process and its view on a fair price for the company, and the board should improve transparency and disclosure, Selce wrote. He asked Illumina to respond publicly to the question of whether it received an informal offer.

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