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ISS Recommends Illumina Shareholders Vote Against Roche's Nominees for Board

NEW YORK (GenomeWeb News) – Institutional Shareholder Services, a proxy-advisory firm, today recommended that Illumina's shareholders vote against Roche's slate of nominees for Illumina's board of directors.

ISS said that Roche's $6.7 billion hostile takeover bid undervalues Illumina, and it recommended shareholders re-elect the directors put forth by Illumina, including Illumina CEO Jay Flatley and Chairman William Rastetter. The move by Roche to replace four Illumina board members and increase the board number by two is part of Roche's plan to gain control of Illumina's board and proceed with the acquisition.

Earlier this week, Flatley and Rastetter sent a letter to the firm's shareholders again recommending that they reject Roche's proposed nominees. The shareholders will have the opportunity to vote on the board members at Illumina's annual shareholder meeting on April 18.

"We are pleased that ISS, especially, recognizes that Roche's unsolicited offer, even as increased to $51 per share, clearly undervalues Illumina, and that our highly qualified and experienced independent Board is best positioned to protect our value creation potential on behalf of our stockholders," Flatley said in a statement today.

Illumina added that a second proxy advisory firm, Egan-Jones Ratings Company, also recommended that its clients support the re-election of the incumbent Illumina directors and reject Roche's proposals.

Illumina has rejected two bids thus far from Roche — the initial $44.50-per-share offer and an increased bid of $51 per share — and has refused to negotiate a deal.

ISS in its report took issue with Roche's rationale for the share price, saying that no one would buy Illumina based on its earnings potential over the next 12 months or its earnings history over the past 12 months. It also pointed out that Roche made its bid when Illumina's stock was trading near a three-year low.

"Traditional financial metrics that focus on near-term or past profitability — exactly the metrics on which Roche has focused — are not particularly useful because they do not measure the one thing both current shareholders and Roche are most interested in: the commercial potential of the company's disruptive technology, across a number of large addressable markets," ISS said in its M&A Edge report.

"With the lack of serious competition in the near future, and the vast potential for sequencing that is already starting to appear, the board should rightfully be concerned about unnecessary truncation of value by selling the company at too low a valuation of its future," ISS added.

Roche, which issued a statement expressing its disappointment in ISS' recommendation, has previously noted an increasingly tougher competitive landscape in the sequencing space from startup Oxford Nanopore Technologies as well as from new products from Life Technologies' Ion Torrent business.

"We respectfully challenge ISS' assertion that our current 'bid does not provide a compelling starting point for negotiations.' Our goal has always been to enter into a negotiated transaction with Illumina and we firmly believe that our present offer is more than adequate to serve as a basis for negotiation with Illumina," Roche CEO Severin Schwan said in a statement today.

He added that the firm is pleased, however, that ISS said that Roche would appear to be "an excellent partner for Illumina as the sequencing industry grows more intertwined with new drug development."

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