Like part-time lovers, Roche and Illumina just can’t call it quits. The Roche/Illumina romance started in 2012 when Roche went straight to ILMN shareholders with a hostile takeover bid as the two companies failed to come to an amiable acquisition agreement late in 2011. The bid was rejected by Illumina, and Roche revised higher in April, which was again rebuffed. Rumors continued to swirl that the two were in discussions through the end of last year, and PropThink outlined some key pieces of evidence in December (see PropThink’s prior article); aside from signaling that a sequencing acquisition is of interest, Roche has made clear its bias towards M&A to create shareholder value. It was only in January of 2013 that Roche Chairman Franz Humer stated said explicitly that Roche was walking away from the negotiating table.
Nevertheless, both Roche and Illumina are feeling the heat to get something done. Roche’s need to improve its own diagnostics business has been apparent, and with a close competitor, Thermo Fisher, willing to pay up for a fellow sequencing company, Roche is under pressure to make some changes. At the same time, the playing field for Illumina is changing. The company failed to usurp BGI Shenzhen earlier this year in an attempt to buy Complete Genomics (GNOM), and BGI won out. Not only has that acquisition, BGI’s purchase of GNOM, created a new and strong competitor in DNA sequencing, but Illumina may have lost one of its largest customers; BGI will be focusing on Complete Genomics’ technology -- now its own -- rather than emptying its pockets for Illumina. All-in-all, as the landscape has changed drastically in the last month, there’s incentive for both Roche and Illumina to pay each other another visit.
Roche's $66.00 bid for Illumina that was rumored in December was an interesting data point. It’s possible that Roche’s Board wasn’t willing to go that high, but with the new valuation for Life, things have changed; there’s reason to believe that the two can come to an agreement. We’ve seen that Illumina and Roche can’t seem to part ways despite their differences, and Illumina is right in Roche’s $7-8B acquisition sweet spot on an EV basis. It certainly makes sense, and with two other acquisitions going down in the last month, the playing field is narrowing as larger and stronger players emerge from the dust. While buying ILMN purely on buyout speculation would be ill-advised, Illumina’s growth potential, says Mr. Deryugin, support the company as a standalone entity even if nothing materializes over the short-term.