Seeking Alpha

Disclosure Insight's  Instablog

Disclosure Insight
Send Message
John P. Gavin, CFA, is the founder and CEO of Disclosure Insight®, an independent publisher of investment research. Mr. Gavin has spent his entire career of over 25 years in the financial services industry. Prior to starting “DI” in 2000, he worked as an equity analyst and portfolio manager... More
My company:
Disclosure Insight
My blog:
The D.I. Blog
  • Is Roche Overpaying For Illumina? 0 comments
    Jan 25, 2012 5:35 PM | about stocks: ILMN

    Roche (OTCQX:RHHBY) announced this morning that it has made a proposal to acquire Illumina (NASDAQ: ILMN, a provider of integrated systems for DNA sequencing, for approximately $5.7 billion. As part of the deal, Roche would acquire ILMN for $44.50 per share in cash, a 64% premium over the closing price on 21-Dec-11 (the day rumors about a deal began to fly). The hefty premium brings about a natural question: Is Roche paying too much?

    With ILMN trading between $50 and $55 per share after the announcement, the market thinks Roche or another suitor is willing to pay more. That may be the case. However, back-of-the-envelope analysis says $44.50 a share could already be rich.

    The significant purchase price relative to tangible equity (9.4x) indicates that a substantial amount of goodwill and other intangible assets will result from the transaction. Such intangible assets are supposed to represent excess earning potential. ILMN's relatively stable growth rate combined with its gloomy future outlook (see below), however, has us wondering where that excess earning potential is going to come from.

    On 25-Oct-11, ILMN announced a global restructuring program. As part of the program, ILMN indicated that it would cut approximately 200 employees (of an estimated 2,100) and record $15 million - $17 million in 4Q11 charges. In the announcement, ILMN cited "uncertainties associated with academic and government research funding and the global economic environment" as its reason for the workforce reduction.

    Stocks: ILMN
Back To Disclosure Insight's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.