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Roche Won't Extend Offer for Illumina as Shareholders Re-elect Flatley, Others to Board

This article has been updated with comments from an internal Illumina e-mail.

NEW YORK (GenomeWeb News) – Roche will not extend its tender offer for Illumina, the Swiss pharmaceuticals and diagnostics firm said today, ending its hostile bid for the San Diego firm for now.

With Illumina's annual shareholder meeting taking place this morning, Roche said that it will not extend its $51-per-share cash tender offer for all shares of Illumina and will let the offer expire at 6 p.m., Friday.

At the meeting, shareholders voted on four Illumina board member slots, as well as a move by Roche to amend Illumina's bylaws in order to expand the San Diego company's board. According to a statement released by Illumina this morning, preliminary results show that the shareholders have re-elected Illumina's board members including CEO Jay Flatley, Chairman William Rastetter, Blaine Bowman, and Karin Eastham.

They rejected Roche's nominees for the board as well as Roche's proposal to expand the Illumina board by two members.

In an e-mail to Illumina employees today, Flatley said that based on preliminary results, the Roche nominees received votes representing around 6 percent of Illumina's outstanding shares. He said the firm expects the votes to be certified by an independent inspector within a few days.

Roche CEO Severin Schwan said that while his firm continues to regard Illumina and its management "with very high regard," Roche could not increase its offer beyond $51, "with access only to public information about Illumina's business and prospects."

Roche, he said, has tried to engage Illumina in negotiations and to "listen to its views of value and prospects, and offer a fair and adequate price to Illumina's shareholders. But in the absence of such discussions, our duty to be disciplined with the assets of Roche's shareholders has led to this decision," he said.

"Roche will continue to consider options and opportunities to develop further its portfolio of businesses in order to expand its diagnostics leadership position," Schwan added.

Roche launched its hostile bid for Illumina in January with an offer of $44.50 per share for a total price tag of $5.7 billion. It then raised its offer to $51 per share, or a total of $6.7 billion.

Illumina has rebuffed Roche's efforts at every turn, however, and implemented a poison pill provision as a defense against Roche.

Most recently, Illumina's bid to fend off Roche received a boost when three proxy firms recommended that shareholders re-elect Illumina's board members at today's meeting.

While Roche's decision not to extend its tender offer puts an end to its pursuit of Illumina for now, a Wall Street analyst earlier this week suggested that the firms could revisit a possible deal later this year.

Jon Groberg, an analyst at Macquarie Securities, said that if Roche were to walk away from its deal, Illumina's stock could fall to the mid-$30 to $40 range. "If over time Illumina is unable to meet its guidance or street expectations then that would likely put them under more pressure to come to the negotiating table," providing Roche more negotiating leverage, Groberg told GenomeWeb Daily News in an e-mail on Tuesday.

"The odd thing in all this is that Roche has made it clear that a deal is there to be done, if Illumina wants to — if it does not, it will be under tremendous pressure to execute in what looks to be a tough operating environment," he said.

Quintin Lai, an analyst at RW Baird, said in a research note today that Roche's move was expected, and Roche's subsequent comments suggest that it remains very interested in Illumina if also frustrated.

"We think if Illumina were to come to the table, we think Roche would re-embrace the offer," Lai said.

He added that Roche may now turn its attention to other next-generation sequencing technologies, which could be a positive for Life Technologies, Complete Genomics, Pacific Biosciences, Oxford Nanopore, and other private firms in the space.

In Wednesday trade on the Nasdaq, shares of Illumina fell as low as $40 before rebounding and finishing the day up 1 percent at $44.51.