Biotech analysts see higher bid for Illumina

BOSTON (MarketWatch) -- Could a substantially higher bid be on the horizon for research tool-maker Illumina Inc.?

According to analysts on Wednesday, it�s more than just possible.

Late Tuesday, Swiss pharmaceutical powerhouse Roche RHHBY � said it was launching a hostile tender offer for Illumina ILMN �, a highly-regarded maker of such specialized research systems as gene sequencers, of $44.50 a share, or about $5.7 billion. Roche said the offer represents a 64% premium over Illumina�s closing price on Dec. 21, which it claims was the last trading session before rumors drifted into the market that it was mulling a bid.

Roche added it was moving ahead with a tender offer after being repeatedly rebuffed by Illumina�s board. In a statement issued late Tuesday, Illumina advised its shareholders not to act until its board had

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evaluated the offer.

Illumina�s stock midday Wednesday was trading just above $54 a share, a clear indication that the market believes the bid is too low and a higher one is likely in the making.

�We are hearing takeout multiples in the $60-80 range � the premium is based upon Illumina�s market dominance, long-term sustainable growth of the industry and Illumina�s potential synergies with Roche�s life science, diagnostic and pharmaceutical business,� Mizuho Securities analyst Peter Lawson told MarketWatch.

Lawson said he thought $44.50 was just an initial bid, noting that Roche�s last hostile takeover battle for a major research tool-maker, Ventana, spanned almost seven months.

Roche originally offered $75 a share for Ventana in June 2007, but eventually settled on $89.50 a share, or about $3.4 billion. The deal closed in early 2008.

Auriga analyst Peter McDonald said he believes a more reasonable offer would be at least $60 a share. He added that the stock�s 52-week peak of a little over $79 a share could be a possible ceiling price.

William Blair analyst Amanda Murphy, however, said a deal could possibly get done in the upper $50-range.

�I think the offer has to go higher. The stock was trading at $75 in July. We�ve come up with intrinsic value of $70 based on a discounted cash flow and think the price has to be in $60s or so, maybe high $50s, to get done,� Murphy told MarketWatch.

Oppenheimer�s David Ferreiro said he thinks Roche might make two bidding passes.

�It�s impossible to try and figure out where the ultimate valuation will fall. I think if you look back to previous Roche deals (Ventana, Genentech), Roche was willing to increase its offer two times, which should serve as some kind of historical proxy,� Ferreiro told MarketWatch via email.

So who else might make a bid?

�Roche appears to be the natural bidder due to the synergies with Roche�s life science, diagnostic and pharmaceutical business � but we�ve seen GE, Siemens and pharma companies interested in diagnostic and tools assets in the past,� said Lawson.

RBC Capital Markets believes other players could also enter the arena.

�With the company in play, it would not be shocking to see interest from other large in vitro diagnostic and healthcare players such as GE, Phillips PHG , Abbott, Johnson & Johnson, and others,� RBC analysts said in a note.

Maxim Group analyst concurred.

�We believe that additional offers for Illumina may surface or Illumina management may change course and engage Roche to negotiate a higher offer,� said Maxim analysts, in their note.

�Other companies that may be interested include: Abbott Laboratories ABT �, Agilent Technologies A �, Bayer AG BAYRY �, Becton, Dickinson and Company BDX �, Danaher Corp. DHR �, GE Healthcare GE �, Johnson & Johnson JNJ �, and Siemens Healthcare SI �,� the Maxim analysts added.