But Monday's rejection -- coupled with an increase to the company's first quarter earnings forecasts -- may reinforce analyst expectations that Illumina will eventually accept a takeover at higher prices as early as the second quarter of 2012.
In rejecting Roche's amended offer, Illumina has urged shareholders not to tender their shares ahead of the company's April 18 shareholder meeting and to vote against a slate of hostile directors appointed by Roche. Illumina and its financial advisors Goldman Sachs (GS) and Bank of America Merrill Lynch (BAC) "unanimously determined that it dramatically undervalues Illumina and does not adequately reflect Illumina's singular position in an industry poised for extraordinary growth," wrote Illumina Chief Executive Jay Flatley in a letter.
On Monday, Illumina said it expects that first quarter earnings per-share earnings will meet or exceed analysts' estimates on revenue of about $270 million. Analysts polled by Thomson Reuters expect Illumina to earn 31 cents a share on revenue of $257 million.The proposal by Roche is its third hostile bid in the U.S. pharmaceuticals sector after taking a previous $46.8 billion offer for Genentech and a $3 billion bid for Ventana Medical Systems directly to shareholders. After increasing its Illumina bid, Roche has come back to the table with a higher bid in all three instances. On March 29, Roche upped its bid for Illumina by roughly 15%, in a move that the world's leading maker of cancer treatments said would expedite an eventual takeover. In reaction to the move, analysts said that a further bid increase would be needed to turn negotiations friendly. Currently, Illumina has enacted a "poison pill" to make it uneconomic for Roche to take a large share stake in the San Diego-based company. "While we were expecting a raised offer, we were not expecting a raised bid so soon after the initial bid. We still anticipate a higher bid, potentially mid-year, to take advantage of anticipated weakness in the space surrounding 2013 [National Institute of Health] funding," wrote Mizuho Securities analyst Peter Lawson in a note reacting to the bid. Lawson gives Illumina shares a price target of $62. "We view today's move as the next step, rather than the final step, in the process that we still ultimately believe will lead to a deal... The important question is whether or not the increased bid is enough to bring Illumina to the negotiating table and allow Roche to learn more about Illumina's closely guarded pipeline," noted JPMorgan analyst Tycho W. Peterson, who rated shares "overweight" with a $70 a share price target. Analysts give Illumina an average price target of $55.38, according to consensus estimates polled by Bloomberg. In afternoon trading, Illumina shares fell over 1% to $51.96. Year-to-date, Illumina shares are up over 60%, fueled by Roche's takeover interest, more optimism on the market for its genetic sequencing machinery and speculation that other drug giants could bid on the San Diego-based company.
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