Roche has turned up the heat on Illumina, urging shareholders to accept its hostile $5.70 billion offer and criticised the US gene specialist’s board.
The Swiss major has filed its definitive proxy statement and proposed an alternative board of directors, ahead of Illumina’s annual meeting to be held on April 18. In a letter to investors, Roche chief executive Severin Schwan says his firm’s $44.50 per share offer “is full and fair and and provides value certainty”.
He goes on to say that “over the past year, Illumina’s growth prospects diminished” and looking at this year and 2013, the firm will “continue to face revenue headwinds’. This is due to “uncertainty over government funding levels, corresponding hesitation to spend by institutional/academic customers, competition from innovative next-generation sequencing devices and rapidly-evolving novel sequencing technologies”. Dr Schwan noted that Illumina management recently issued its lowest revenue and earnings growth guidance in the past five years.
‘Inactivity’ is costing Illumina shareholders
Over the first two quarters of 2011, Illumina repurchased $366 million of shares when its stock was trading in the $60-$70 per share but during the fourth quarter, when the average price was $29.49 per share, no additional buybacks were executed, “despite $1.1 billion of balance sheet cash available for use”, Dr Schwan notes. He added that “this inactivity suggests a lack of conviction by Illumina in a near-term recovery of its stock price”.
He goes on to say “because of the lack of action by Illumina management” by not extinguishing 2014 convertible notes”, the board’s inactivity has cost over $390 million. This represents nearly one-third of the firm’s cash on hand “that will be received by Illumina’s investment banking counter-parties instead of being available to Illumina’s shareholders”, Dr Schwan claimed.
The Roche boss goes on argue that Illumina shares is only being driven by his firm’s interest but added that “it remains our preference to engage in voluntary and meaningful discussions”. He states that Roche want Illumina’s chief executive, Jay Flatley, to stay on after the acquisition and concluded by saying “do not let Illumina silence your voice”.
Roche’s ‘lowball price’ dismissed
In response, the gene specialist issued its own proxy statement argues that Roche, “an Illumina competitor with a record of pursuing hostile acquisitions,” is trying to buy Illumina at a lowball price and capture our future growth and value potential for its own stockholders.”
The firm goes on to say that “we alone have succeeded in a marketplace that has witnessed numerous attempts by others to establish viable sequencing and array businesses, none of which have achieved a similar level of success”, adding that “Roche’s own efforts in our market have severely disappointed”.
Since 2002, “we have delivered nine platforms to market”, Illumina adds, “generating a 1,129% return for our stockholders over the 10-year period ending in January 2012”. It concludes by saying that “your board is better positioned to protect your interests than Roche’s hand-picked nominees”.
