Friday, April 13, 2012

Roche Letter to ILMN Shareholders

There's an article about this in the Journal today, but this is too absurd of a situation not to re-post here.

Roche, which is attempting to make a hostile purchase of DNA sequencing firm Illumina, wrote an open letter to ILMN shareholders urging them to accept Roche's bid.  In trying to convince them to do so, Roche talks about how overvalued ILMN is and how there's no clarity on future growth.  The acquirer is bashing the company that it wants to spend billions of dollars to acquire.  Some of the highlights are posted below:
Illumina has continually made a number of qualitative statements regarding the potentially large market for its products in emerging markets and industrial end-markets. However, the company has yet to produce any quantifiable evidence or projections to reassure shareholders when or how this growth will be realized. In fact, since Roche’s offer, the only relevant industry news highlighted the increasing competitive landscape following product-related announcements from Oxford Nanopore and Life Technologies. In addition, Wall Street research analysts who understand the future potential of the sequencing market, Illumina’s role in the industry, as well as its future growth prospects had already factored this potential into their price targets prior to Roche’s offer – and these price targets had a median value of $34 per share
In a recent letter to shareholders, Illumina pointed out that it has been called “the Apple of the genomics business.” However, there is one glaring difference between Illumina and Apple – Illumina’s MiSeq and HiSeq ARE NOT the iPhone and the iPad. Apple’s revolutionary products were huge and instantaneous commercial successes, appealing to a seemingly endless consumer base around the world. Illumina’s products on the other hand, although “revered by genomics researchers around the world,” serve a much smaller and highly regulated market. And unlike at Apple stores, crowd control of eager buyers has not been a problem for Illumina and not even Illumina has projected any surge in revenues from its products in any specific foreseeable time period. As a standalone company, Illumina’s future is far from certain.
If I were a shareholder of Roche I think I'd be a little concerned about why my company wants to acquire this company that it seems to have such a low opinion of.

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