Advisory firms back Illumina's view
The two firms call Roche's second takeover bid undervalued.
By Zacks Equity Research
In a recent turn of events relating to the never-ending dispute between Illumina (ILMN) and Roche Holdings (RHHBY), Institutional Shareholder Services and proxy advisory 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 in cash to acquire Illumina for an aggregate value $5.7 billion. This offer was at a premium to the then prevailing share price of Illumina of $37.69. Earlier, Roche had made multiple efforts to strike a deal with Illumina, but the latter 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 to $51.00 per share. Illumina viewed this price also as undervalued and rejected this offer as well. 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 its 2012 annual meeting of stockholders on April 18, 2012. Roche, of course, 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 earnings per share. While revenues increased at a 10-year compound annual growth rate of 83%, non-GAAP earnings per share increased at a five-year compound annual growth rate 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 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 company has made at least 4 acquisitions in the space, and few people have paid any attention.
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