The Work

January 25, 2012 4:42 PM

Davis Polk, Dewey Advising as Roche Makes $5.7 Billion Hostile Bid for Illumina

Posted by Tom Huddleston Jr.

UPDATE: 2/8/12, 2:20 p.m., Shearman & Sterling M&A partner John Marzulli advised both Greenhill & Co., and Citigroup Global Markets in their role as financial advisers to Roche on its offer to Illumina. Gibson, Dunn & Crutcher corporate partners Dennis Friedman and Barbara Becker also advised Citigroup Global.

In a deal that would be worth $5.7 billion, health care giant Roche has launched a hostile attempt to acquire the outstanding shares of San Diego–based gene-mapping equipment-maker Illumina, Inc.

Under the tender offer disclosed Wednesday, Roche would pay $44.50 in cash per Illumina share in an effort to allow the Swiss company to expand its own DNA sequencing capabilities in the field of diagnostics, according to the Roche statement announcing the offer. Roche said it opted to take the offer directly to Illumina shareholders after making what it claims were "multiple efforts to engage with Illumina" that proved unsuccessful.

Illumina's board of directors replied to Roche's offer on Wednesday with the announcement that it would review the bid, adding that shareholders should take no action before hearing the board's recommendation.

The offer represents an 18 percent premium over Illumina's Tuesday closing price and a 64 percent premium over the price on December 21—the day before market speculation about the possibility of a Roche takeover began. Word of the hostile bid sent Illumina's share price soaring past Roche's offer, to the point that it was hovering near $54 per share as of Wednesday afternoon. The market's reaction to the bid has led to speculation that Roche will have to raise its offer, according to BusinessWeek.

Davis Polk & Wardwell is advising Roche on the takeover attempt. The firm's New York–based team includes corporate partners Arthur Golden and Marc Williams, along with antitrust partner Ronan Harty, litigation partner Lawrence Portnoy, benefits partner Jean McLoughlin, and tax partner Michael Mollerus. Corporate partner Frank Azzopardi is advising on intellectual property issues. Gottlieb Keller is Roche's general counsel.

In 2009, Golden led a Davis Polk team that advised Roche on its $44 billion hostile bid for the stake the company did not already own in U.S. rival Genentech. The two companies eventually reached a compromise, agreeing on a $46.8 billion deal after Roche raised its initial offer.

Illumina, meanwhile, has turned to Dewey & LeBoeuf as the company's board mulls the Roche bid. Dewey's team is led by Silicon Valley corporate partners Richard "Rick" Climan and Keith Flaum, as well as by corporate of counsel Frederick Kanner in New York.

Roche said it plans to combine Illumina's operations with its existing applied sciences business, moving that unit's headquarters to San Diego. To Roche—one of the world's leading producers of cancer-fighting drugs—the main prize in an Illumina acquisition would be the company's technology for performing genetic analysis on tumors as a step toward tailoring treatment for individual patients, BusinessWeek notes.

As part of its offer, Roche also proposes to nominate a slate of independent candidates for election to Illumina's board of directors that would give Roche a majority on that body. Writing on The New York Times's DealBook blog, Steven Davidoff notes that a loophole in Illumina's organizational documents could allow Roche to avoid a long wait, and multiple proxy contests, to win that majority.

Illumina has a staggered board that only holds elections for a handful of directors in any given year, a provision that could make a hostile bidder wait multiple years before it can win control of the board. That factor, combined with a poison pill plan that Illumina could still adopt, would make "a powerful antitakeover device," Davidoff writes. But, Illumina's staggered board provision is located in its company's by-laws, which can be amended by shareholders without board approval—instead of in the company's charter, where it would need consent from shareholders and the board to be changed.

Davidoff points out that Roche relied on a similar set of circumstances to successfully take over cancer diagnostics company Ventana in 2007. While Roche would need the approval of two-thirds of Illumina shareholders to change the company's by-laws, the tactic could prove successful once again, Davidoff suggests.

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