ILMN Makes Compelling Argument To Acquire GNOM At Higher Price

BGI-Shenzhen has extended the acceptance deadline for its $3.15 per share tender offer for Complete Genomics (NASDAQ:GNOM), but the elephant in the room – or perhaps white knight – may make a decision tough for shareholders and the board of the small genomic sequencing firm. Illumina (NASDAQ:ILMN), a provider of sequencing products and services, revealed its own $3.30 per share offer for GNOM just last week, and today released a letter to Complete Genomics’ board of directors dated November 20 that questions GNOM’s recommendation not to pursue the ILMN bid. Complete Genomics claims that anti-trust laws will hamper Illumina’s proposal, however, Illumina’s letter suggests that the BGI deal is even more reliant on regulatory approval, while less lucrative for GNOM shareholders:

BGI’s proposal is subject to a number of conditions including, among other things,(1) receipt of financing, (2) approval of the Committee on Foreign Investment in the United States (CFIUS) under the Exon-Florio Act, and (3) expiration or termination of the waiting period under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act…In contrast, our Proposal is not subject to any conditions relating to financing or CFIUS approval.

Illumina’s 5% premium aside, the letter makes a compelling case for a simpler deal, and one that has a better chance of passing antitrust scrutiny. llumina is prepared for an all-cash tender and requires no further due diligence on its own part. And the claims will be difficult for Complete Genomics to refute in the face of watchful shareholders. With the argument now public, Complete Genomics’ fiduciary duty is in the limelight. Illumina clearly wants to stay in the race, and the public letter may force BGI’s hand; the Chinese company has few cards left to play outside of a price increase, and if both companies remain committed, it could result in a bidding war. We suspect that BGI operates on a tighter budget than Illumina, however, demonstrated by its reliance on a financing to complete the merger. The company may not have the resources for an auction-style sale, and could yield to the higher bidder with little fanfare. Either way, offers look like they are going to rise, and GNOM shares will follow. After the letter was released on Wednesday morning, shares climbed 1.5%.