Mergers and acquisitions : the Roche's offer for Illumina

Abstract

As of January 2012, the Swiss drug maker Roche made a hostile offer of $44,50 USD per share of Illumina, a biotechnology company based in the US. This move has been following a consolidating strategy from Roche that acquires small and mid-sized companies which will allow its business to develop. The beginning of the negotiations was coincident with the beginning of this dissertation and it captured the writer’s attention to evaluate such deal. Throughout this dissertation, there is a review of literature regarding several topics on valuation and M&A, followed by an analysis of both companies and their respective industries. One of the most important chapters is related to the companies’ valuations and the assessment of potential synergies from the deal. An offer price is suggested along with an offer structure. Illumina’s market cap is valued at $5,7 bn, representing an upside potential of 35% against the figures of the last trading day of 2011. Synergies are estimated to be of $3,3 bn, mostly due to Roche’s capability to launch personalised medicines, as well as its capability to incorporate Illumina’s operations and make it more efficient. An offer price of $56,47 is suggested with a deal 100% financed with debt, so that most of the value added is received by Roche’s shareholders. By the time this thesis was delivered, there was still no agreement between both companies in order to close the deal and Illumina asked for $75 per share in the last negotiation, which Roche rejected.