Sale of GNOM to BGI-Shenzhen Disappointing But Inevitable

Complete Genomics (NASDAQ:GNOM) announced that it has reached buy-out terms with Chinese pharmaceutical company BGI-Shenzhen, in which GNOM will be sold for $117.6M, or $3.15/share. The offer comes at an 18% premium to Friday’s $2.67 closing price. Shares of Complete Genomics have been decimated since mid-2011, as the company’s low-priced outsourcing model for DNA analysis has gained some traction, but not enough to overcome the capital needs of the business. In addition, competitors like Illumina (NASDAQ:ILMN) creating their own genomic outsourcing services business has cast doubt on GNOM’s ability to gain meaningful share in the segment as an independent company despite GNOM’s strong technology base. The company provides outsourced genetic analysis and testing, primarily to research institutes helping its customers avoid expensive equipment purchases. After GNOM’s strategic review and decision to explore strategic alternatives in June, larger companies in the industry such as Roche (OTC:RHHBY) were rumored to be eyeing GNOM as a take-out candidate. Today’s news, however, demonstrates that the company may have had difficulty negotiating with well-known competitors and is going to take advantage of the resources that can be provided by BGI-Shenzen.

BGI-Shenzen provides genome sequencing internationally for agriculture, animals, and humans. The exact structure of the deal, which GNOM calls a merger in today’s press release, is still unclear, but the company will continue to operate separately with existing headquarters in California. Management is unanimously encouraging shareholders to accept the tender offer, which is open for 20 days, and expects the deal to be completed in early 2013. There remains a chance for higher bids on GNOM, so existing shareholders may want to hang on for a bit, however, the strong endorsement of management and the company’s Board suggest that this deal is likely a fait accompli.