Illumina in Talks to Buy Grail, Possibly for Over $8 Billion

Illumina shares tumbled after a news report said it was in talks to buy cancer-discovery startup Grail, possibly for more than $8 billion.
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Illumina  (ILMN) - Get Report shares fell Wednesday after a news report said the genetic-sequencing titan is discussing a deal to buy cancer-discovery startup Grail that might top $8 billion.

Illumina recently traded at $325.93, down 7.5%. The shares have eased 1% year to date.

Bloomberg secured the information from knowledgeable sources. Grail’s investors include Microsoft's  (MSFT) - Get Report Bill Gates, Amazon's  (AMZN) - Get Report Jeff Bezos, Merck  (MRK) - Get Report and Johnson & Johnson  (JNJ) - Get Report.

Grail had a $6 billion valuation in its most recent funding round, the sources told Bloomberg. Grail has raised more than $1.9 billion, according to regulatory filings. 

The purchase would be the largest ever for Illumina, according to Bloomberg .

A deal could be announced as soon as next week, but there’s no guarantee of any deal, the sources said.

Morningstar analyst Julie Utterback views Illumina shares as overvalued, pegging fair value at $285. But she sees hope for the company.

“With uncertainty around how long volumes will stay at these depressed levels, Illumina remained mum on its guidance for 2020,” she wrote of its second-quarter earnings report last month. 

“We have not materially changed our projections for Illumina, including our 2020 expectations for mid-single-digit sales and mid-teens EPS declines.”

But on the bright side, “we expect demand for Illumina's industry-leading sequencing tools will rise substantially once the Covid-19 crisis abates, and we have not changed our long-term assumptions for the firm either,” Utterback said.

“Our fair value estimate, which implies an earnings multiple around 36 times 2021 expected earnings, remains appropriate for a company that could grow its top-line in the low-double digits and its bottom line in the mid-teens compounded annually in the outer years of our five-year forecast.”