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Illumina Urges Shareholders to Reject Roche's Nominees and Plan to Expand Board

NEW YORK (GenomeWeb News) – Illumina has gone on the offensive against Roche's hostile bid for the San Diego-based company urging its shareholders to reject nominees put forth by Roche for Illumina's board of directors.

In a proxy statement this week for its annual shareholders meeting, Illumina also tells its shareholders not to support a change in its bylaws that would increase the number of board members. The change is being proposed by Roche in an effort to gain a majority on Illumina's board and move ahead with its $5.7 billion hostile bid for Illumina.

Roche named its nominees for Illumina's board and made its proposal to increase the size of Illumina's board shortly after announcing its offer to buy all outstanding shares of Illumina at $44.50 per share. Illumina has rejected the offer.

Roche is nominating a total of six members to Illumina's board: Barry Bailey; Earl Collier; Dwight Crane; David Dodd; Michael Griffith; and Jay Hunt. Roche also has nominated named a number of alternates.

A total of four Illumina board members are up for reelection this year. In addition to seeking to replace them, Roche proposes to increase the board size to 11 members from nine and to fill the two additional slots with its candidates, which would give Roche control of Illumina's board and the ability to approve its hostile bid.

When it announced the nominations, Roche called its candidates "well-qualified distinguished executives who we believe if elected, will act in the best interest of Illumina’s shareholders. We believe that the proposed directors will carefully review the value represented by Roche’s offer and ensure that Illumina acts in the best interests of its shareholders.”

In its proxy statement dated March 1, however, Illumina told its shareholders that voting for Roche's board nominees and its board expansion proposal would benefit Roche but not Illumina's shareholders.

It said that unlike Illumina's board members, Roche's officers and directors are obligated to act in the interest of the Swiss pharmaceutical and diagnostic firm's best interest. "We strongly believe that individuals selected and compensated by Roche would have conflicts of interest if elected to Illumina's board of directors," Illumina said, adding "It is in Roche's economic interest to acquire Illumina at the lowest possible value to Illumina's stockholders.

"In other words, the interests of Roche and of Illumina's stockholders are diametrically opposed," the company said.

Illumina goes on to say that Roche is paying each of its nominees to Illumina's board $60,000 in cash plus reimbursement for out-of-pocket expenses, and providing indemnification for other expenses in exchange for agreeing to be a nominee. The nominees also have signed an agreement with Roche that it has not provided to Illumina.

"We believe Roche’s nominees have been nominated solely to facilitate Roche’s acquisition of Illumina at a price that is inadequate to Illumina’s stockholders," Illumina said. "While Roche’s nominees may not be controlled by Roche or obligated to vote as directed by Roche, we believe their objectivity with respect to Roche’s unsolicited offer may be colored by their relationship with Roche, including the compensation and indemnification agreements."

Illumina has not said when its annual shareholders' meeting will take place but has historically held it in March or April.

Included among the four current Illumina board members who will stand for reelection during the meeting are Jay Flatley, its president and CEO, and William Rastetter, chairman of the board. Blaine Bowman and Karin Eastham also are up for reelection.

In addition to replacing those four, Roche is maneuvering to add two other board members by making certain amendments to Illumina's bylaws that would expand Illumina's board.

Illumina said that Roche intends to repeal all amendments to the company's bylaws that were adopted by Illumina's board without shareholder approval after April 22, 2010. Doing so, Illumina cautioned, could repeal bylaw amendments its board believes is in the best interest of its shareholders "and adopted in furtherance of its fiduciary duties."

"[W]e believe Roche's proposals to repeal bylaw amendments represents Roche's attempt to interfere with our board of directors' ability to act in accordance with its fiduciary duties to you and therefore should be rejected," Illumina said.

Illumina's appeal to its shareholders in the proxy statement are not surprising as it tries to fend off Roche's takeover bid, which was made after Illumina turned down an earlier $40-per-share bid and declined to further negotiate with Roche. In rejecting the $44.50 per share offer, Illumina's board called it "grossly inadequate" and characterized Roche's actions as "blatantly opportunistic."

Roche shows no sign of budging, however, and in the past week it extended the deadline for its tender offer, as well as the antitrust waiting period in connection to the offer.