By Sakthi Prasad
January 25, 2012 8:22 AM EST
(REUTERS) -- Roche Holding AG is offering $5.7 billion in cash to buy U.S. gene sequencing company Illumina Inc in an unfriendly takeover bid that marks a major play by the Swiss drugmaker into the gene technology field.
Gene sequencing is central to personalized medicine, which allows scientists to predict a patient's response to a particular drug, both during clinical practice and in drug trials.
Roche is already the world's largest maker of cancer drugs, where gene analysis is progressing fastest, as well as a major maker of diagnostic tests.
"This ... will help Roche sustain its leadership position in targeted therapies, which we consider as highly promising," said Bryan Garnier analysts in a research note.
But they added a deal would probably be neutral to earnings in the first year of ownership at the current offer price, which is 18 percent above Illumina's closing price on Tuesday and over 60 percent above the level before rumors of a bid started, and that Roche might have to raise its offer to secure a deal.
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Roche Chief Executive Severin Schwan said the company had no intention of raising its offer for the San Diego-based group that was founded in 1998 and employs just over 2,000 people.
At 4:55 a.m. ET, Roche stock was down 2.2 percent at 161 Swiss francs, lagging a 1.3 percent drop in the European healthcare index as some investors fretted over the cost of a deal.
UNWILLING TO TALK
Basel-based Roche said it would offer to buy Illumina's shares for $44.50 each in cash. Roche currently owns a very small number of Illumina shares, finance chief Alan Hippe said.
It plans to commence a tender offer because Illumina was not willing to negotiate a transaction.
"Roche has made multiple efforts to engage with Illumina in order to reach a negotiated transaction, but Illumina has been unwilling to participate in substantive discussions," it said.
Oddo Securities analysts described the offer as "very generous," saying it equated to 22 times Illumina's forecast operating profit for 2011 at a time when diagnostics sector peers are trading at around 10 times forecast earnings.
However, Deutsche Bank analysts said Illumina's earnings were forecast to grow strongly in the coming years.
A deal, which would be Roche's largest since it bought the remaining stake in U.S. biotech group Genentech for nearly $47 billion, would be financed from available cash and borrowings under its credit facilities and would not require a financing condition, Roche said.
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