UBS: Roche’s $5.7 Billion Bid For Illumina Isn’t High Enough

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Early today, Swiss healthcare company Roche Holding announced a hostile $5.7 billion bid for California based bio-tech firm Illumina Inc.

Roche Holding offered $44.50 for each of Illumina’s shares, or an 18% premium to yesterday’s closing price. Illumina’s shares have rocketed a whopping 43.19%. 

UBS analyst Daniel Arias however thinks the deal might not go through:

“While these multiples are near or above those for several of the larger life sciences deals, we believe many holders view ILMN as undervalued beyond the current offer, and our initial take is that a tender at this price may be difficult. We note that Roche’s last two hostile deals (Genentech & Ventana) each required multiple bids.”

Arias says that Roche’s offer appears attractive when considering the 5% revenue growth estimate for 2012, but not when looking at growth in the longer-term. UBS projects Illumina’s revenue will grow 8% in 2013, and 16% in 2014. Illumina does however face lab funding risks and growing competition in next-generation gene sequencing.

In its announcement, Roche said:

“Roche has made multiple efforts to engage with Illumina in order to reach a negotiated transaction, but Illumina has been unwilling to participate in substantive discussions. Roche has therefore decided to promptly commence a tender offer to purchase all of the outstanding shares of common stock of Illumina for $44.50 per share in cash. In addition, Roche will nominate a slate of highly qualified, independent candidates for election to Illumina’s Board of Directors and propose certain other matters for the consideration of Illumina’s shareholders at Illumina’s 2012 annual meeting, which, if adopted, would result in Roche-nominated directors comprising a majority of the Illumina board.”

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