Advisory Firms Back Illumina's View - Analyst Blog

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In a recent turn of events relating to the never-ending dispute between Illumina ( ILMN ) and Roche Holdings ( RHHBY ), Institutional Shareholder Services ( ISS ) and proxy advisor firm, Egan-Jones Ratings Company supported Illumina's rejection of Roche's second takeover bid.

The tussle between the two dates back to January 23, 2012, when Roche offered $44.50 per share (aggregate value $5.7 billion) in cash to acquire Illumina. This offer was at a premium to the then prevailing share price ($37.69) of Illumina. Earlier, Roche had made multiple efforts to strike a deal with Illumina, but Illumina was never eager to participate in any substantial discussions.

Again in April 2012, following Illumina's dismissal of its initial bid, Roche placed an increased offer of $51.00 to takeover Illumina. The second offer bid was also rejected by Illumina as it viewed the offer price to be undervalued. Concurrently, ISS and Egan-Jones also found the offer to be grossly insufficient considering Illumina's future valuation.

Both ISS and Egan Jones suggested their clients to vote against the Roche proposal and support the re-election of Illumina's director nominees at Illumina's 2012 Annual Meeting of Stockholders on April 18, 2012. However, Roche is very much disappointed with the views of these firms.

Illumina remains encouraged with the support of these two advisory firms. Earlier, in its letter to the shareholders, the company drew attention to its leading position in the global next-generation sequencing market (with 60% market share). The company estimates that over 90% of all sequencing output across the world is produced on Illumina instruments.

In addition to that, the company also noted its steady performance over the past decade where it had consistently outperformed analyst estimates of revenues and EPS. While revenues increased at a 10-year CAGR of 83%, non-GAAP EPS increased at a 5-year CAGR of 26%. Moreover, Illumina generated a 1,129% return to its stockholders compared to a mere 16% gain in the S&P 500 during the 10-year period.

Amidst the deadlock, we suspect the failure of the Roche takeover bid to be imminent. The revised offer price continues to remain lower than the traded price, which reflects the investors' high aspiration about the company's future prospects. Presently, Illumina retains a short-term Zacks #2 Rank (Buy rating). Over the longer term, we have a 'Neutral' recommendation on the stock.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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Referenced Stocks: ILMN , ISS

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