Swiss drugmaker Roche is digging in for a long fight after gene sequencing company Illumina rejected its $5.7 billion hostile takeover bid as inadequate and said it would be more successful on its own.
Roche, which offered to pay $44.50 per share when it launched the bid for Illumina last month, reiterated on Wednesday that it believed its offer was "full and fair" and that it was ready to start discussions with Illumina.
On Tuesday, Illumina - which has already adopted a "poison pill" defense strategy - told shareholders not to tender any of their shares to Roche, saying the offer failed to properly value its existing and coming products.
A deal would give Roche's diagnostics unit a leading position in the market for gene sequencing, which can help better identify which patients benefit from a given drug.
Although it faces a drawn-out battle for the San Diego-based group, analysts expect Roche, which has a history of success with such hostile takeouts, to prevail in the end.
"Next step for Roche could be to show the good intent, sugarcoat the deal and then start pitching the transaction to Illumina's major shareholders. Ultimately they hold the key to close the deal," Vontobel analyst Andrew Weiss said.
Roche initially offered $40 a share for Illumina, according to a filing with the U.S. Securities and Exchange Commission. That offer, subject to certain conditions, was made in a letter to Illumina on January 3, the filing said.
But when it announced its approach on January 25, it made an offer of $44.50.
Investors say Basel-based Roche may have to raise its bid to around $60 per share to win Illumina. Shares in Illumina, which also posted better-than-expected fourth-quarter earnings on Tuesday, closed on Tuesday at $51.80.
Roche raised offers in other bidding situations, even after it declared initial salvoes a full-and-fair value, such as for biotech company Genentech and test maker Ventana.
When chief executive Severin Schwan was diagnostics head, Roche in 2008 overcame months-long resistance from Ventana to snap it up for $3.4 billion. It had made an unsolicited, low-end bid, before increasing its original offer by 19 percent.
No white knight?
Some investors have said a rival bid is unlikely as few would be prepared to take on as determined a bidder as Roche.
"It's hard to see anybody else emerging as a bidder. The fit is best with Roche and I don't think any other competitor in that space would be willing to pay a higher price than Roche. Also you really need a diagnostics business to get the synergies," Sarasin analyst David Kaegi said.
But one person familiar with the deal said if the bidding process for Illumina does drag on, this would give other interested parties time to have a good look at the company.
Roche rivals Sanofi, Novartis and AstraZeneca have said they don't see a need to match Roche in buying a gene-decoding business, favoring partnerships instead.
Pharma industry bankers and analysts say Siemens, General Electric, Thermo Fisher Scientific, Danaher, Agilent Technologies and Johnson & Johnson are seen as potential interlopers.
Illumina is a major player in the emerging field of gene sequencing.
It makes machines that decode a person's entire genome, going far beyond simple genetic tests that are already used in diseases such as cancer to test for a handful of gene variations.