UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
SCHEDULE TO
Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of
the Securities Exchange Act of 1934
(Amendment No. 17)
ILLUMINA, INC.
(Name of Subject Company)
CKH ACQUISITION CORPORATION
ROCHE HOLDING LTD
(Names of Filing Persons — Offeror)
Common Stock, Par Value $0.01 Per Share
(including the associated preferred stock purchase rights)
(Title of Class of Securities)
________________
452327109
(Cusip Number of Class of Securities)
Beat Kraehenmann
Roche Holding Ltd
Grenzacherstrasse 124
CH-4070 Basel
Switzerland
Telephone: +41-61-688-4111
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Filing Persons)
Copies to:
Marc O. Williams
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
Telephone: (212) 450-4000
CALCULATION OF FILING FEE
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Transaction Valuation*
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Amount of Filing Fee**
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$7,584,496,365
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$869,183.28
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*
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Estimated for purposes of calculating the filing fee only. This amount assumes the purchase of all 122,327,021 shares of common stock of Illumina all 10,238,771 shares of common stock of Illumina subject to issuance pursuant to options, all 3,300,661 shares of common stock of Illumina subject to issuance pursuant to outstanding restricted stock units and approximately 12,849,162 shares of common stock of Illumina subject to issuance upon conversion of Illumina’s outstanding convertible notes, each as of January 31, 2012 as set forth in Illumina’s Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission on February 7, 2012.
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**
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The amount of the filing fee is calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, by multiplying the transaction valuation by .00011460.
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R
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Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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Amount Previously Paid:
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$753,976.85
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Filing Party:
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CKH Acquisition Corporation
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Form or Registration No.:
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SC TO-T
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Date Filed:
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January 27, 2012
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Amount Previously Paid:
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$115,206.43
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Filing Party:
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CKH Acquisition Corporation
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Form or Registration No.:
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SC TO-T/A
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Date Filed:
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March 29, 2012
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£
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Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.
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Check the appropriate boxes below to designate any transactions to which the statement relates:
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R
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third-party tender offer subject to Rule 14d-1.
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£
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issuer tender offer subject to Rule 13e-4.
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£
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going-private transaction subject to Rule 13e-3.
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£
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amendment to Schedule 13D under Rule 13d-2.
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Check the following box if the filing is a final amendment reporting the results of the tender offer. £
This Amendment No. 17 to the Tender Offer Statement on Schedule TO amends and supplements the statement (as amended, the “Schedule TO”) originally filed on January 27, 2012 by CKH Acquisition Corporation (the “Purchaser”), a Delaware corporation and an indirect wholly owned subsidiary of Roche Holding Ltd, a joint stock company organized under the laws of Switzerland. The Schedule TO relates to the offer by the Purchaser to purchase all outstanding shares of common stock, par value $0.01 per share (together with the associated preferred stock purchase rights, the “Shares”), of Illumina, Inc., a Delaware corporation, at $51.00 per Share, net to the seller in cash, without interest and less applicable withholding taxes, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated January 27, 2012 (the “Offer to Purchase”), and in the related Letter of Transmittal, copies of which are attached to the Schedule TO (which, together with any amendments or supplements thereto, collectively constitute the “Offer”).
The information set forth in the Offer to Purchase, including all schedules thereto, is hereby expressly incorporated herein by reference in response to all of the items of the Schedule TO, except as otherwise set forth below.
Item 12. Exhibits.
Item 12 is hereby amended and supplemented with the following information:
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(a)(5)(xxvi)
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Investor Presentation, dated March 2012.
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SIGNATURES
After due inquiry and to the best knowledge and belief of the undersigned, each of the undersigned certify that the information set forth in this statement is true, complete and correct.
Date: March 30, 2012
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CKH ACQUISITION CORPORATION
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|||
| By: | /s/ Bruce Resnick | ||
| Name: | Bruce Resnick | ||
| Title: | President | ||
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ROCHE HOLDING LTD
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| By: | /s/ Dr. Gottlieb Keller | ||
| Name: | Gottlieb Keller | ||
| Title: | Authorized Signatory | ||
| By: | /s/ Dr. Beat Kraehenmann | ||
| Name: | Beat Kraehenmann | ||
| Title: | Authorized Signatory | ||
EXHIBIT INDEX
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Exhibit No.
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Description
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(a)(1)(i)
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Offer to Purchase dated January 27, 2012.*
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(a)(1)(ii)
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Letter of Transmittal (including the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9).*
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(a)(1)(iii)
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Notice of Guaranteed Delivery.*
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(a)(1)(iv)
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Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.*
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(a)(1)(v)
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Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.*
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(a)(1)(vi)
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Summary Advertisement dated January 27, 2012.*
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(a)(5)(i)
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Press Release issued by Roche Holding Ltd, dated January 27, 2012.*
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(a)(5)(ii)
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Roche Memorandum to Global Sales Teams, dated January 27, 2012.*
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(a)(5)(iii)
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Transcript of Video Message to Roche Employees, dated January 30, 2012.*
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(a)(5)(iv)
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Press Release issued by Roche Holding Ltd, dated January 31, 2012.*
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(a)(5)(v)
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Press Release issued by Roche Holding Ltd, dated February 1, 2012.*
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(a)(5)(vi)
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Transcript of Roche Holding AG Earnings Call dated February 1, 2012.*
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(a)(5)(vii)
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Transcript of Roche Holding AG Earnings Call dated February 3, 2012.*
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(a)(5)(viii)
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Transcript of Roche Investors/Analysts Conference London Diagnostics Session 1, dated February 1, 2012.*
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(a)(5)(ix)
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Transcript of Roche Investors/Analysts Conference London Diagnostics Session 2, dated February 1, 2012.*
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(a)(5)(x)
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Transcript of Roche Investors/Analysts Conference London Strategy & Finance Session 1, dated February 1, 2012.*
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(a)(5)(xi)
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Transcript of Roche Investors/Analysts Conference London Strategy & Finance Session 2, dated February 1, 2012.*
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(a)(5)(xii)
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Press Release issued by Roche Holding Ltd, dated February 8, 2012.*
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(a)(5)(xiii)
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Transcript of Roche Investors/Analysts Conference New York Strategy & Finance, dated February 3, 2012.*
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(a)(5)(xiv)
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Transcript of Roche Investors/Analysts Conference New York Diagnostics, dated February 3, 2012.*
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(a)(5)(xv)
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Transcript of Roche Annual Media Conference, dated February 1, 2012.*
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(a)(5)(xvi)
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Press Release issued by Roche Holding Ltd, dated February 27, 2012.*
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(a)(5)(xvii)
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Investor Presentation, dated February 2012.* |
| (a)(5)(xviii) |
2012 Annual General Meeting Press Release issued by Roche Holding Ltd, dated March 6, 2012.*
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| (a)(5)(xix) | 2012 Annual General Meeting Address given by Franz B. Humer, dated March 6, 2012.* |
| (a)(5)(xx) | 2012 Annual General Meeting Address given by Severin Schwan, dated March 6, 2012.* |
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(a)(5)(xxi)
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Press Release issued by Roche Holding Ltd, dated March 13, 2012.*
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(a)(5)(xxii)
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Press Release issued by Roche Holding Ltd, dated March 20, 2012.*
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(a)(5)(xxiii)
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Letter to Illumina shareholders from Severin Schwan, dated March 20, 2012.*
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| (a)(5)(xxiv) |
Press Release issued by Roche Holding Ltd, dated March 26, 2012.*
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| (a)(5)(xxv) |
Press Release issued by Roche Holding Ltd, dated March 29, 2012.*
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| (a)(5)(xxvi) | Investor Presentation, dated March 2012. |
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(b)
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Not applicable.
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(c)
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Not applicable.
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(d)
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Not applicable.
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(f)
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Not applicable.
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(g)
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Not applicable.
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(h)
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Not applicable.
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______________________
* Previously filed.
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Roche's Offer to Acquire Illumina Presentation to Investors March 2012 |
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This presentation contains certain forward-looking statements. These forward-looking statements may be identified by words such as 'believes', 'expects', 'anticipates', 'projects', 'intends', 'should', 'seeks', 'estimates', 'future' or similar expressions or by discussion of, among other things, strategy, goals, plans or intentions. Various factors may cause actual results to differ materially in the future from those reflected in forward-looking statements contained in this presentation, among others: 1 pricing and product initiatives of competitors; 2 legislative and regulatory developments and economic conditions; 3 delay or inability in obtaining regulatory approvals or bringing products to market; 4 fluctuations in currency exchange rates and general financial market conditions; 5 uncertainties in the discovery, development or marketing of new products or new uses of existing products, including without limitation negative results of clinical trials or research projects, unexpected side-effects of pipeline or marketed products; 6 increased government pricing pressures; 7 interruptions in production; 8 loss of or inability to obtain adequate protection for intellectual property rights; 9 litigation; 10 loss of key executives or other employees; and 11 adverse publicity and news coverage. Any statements regarding earnings per share growth is not a profit forecast and should not be interpreted to mean that Roche's earnings or earnings per share for this year or any subsequent period will necessarily match or exceed the historical published earnings or earnings per share of Roche. For marketed products discussed in this presentation, please see full prescribing information on our website -- www.roche.com All mentioned trademarks are legally protected. 2 |
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Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion 3 |
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Executive Summary Roche is increasing its all-cash offer to acquire Illumina to $51.00 per share. [] Offer is highly attractive, representing both full and fair value as well as value certainty -- Implies 1-day and 1-month average premiums to the unaffected price of 88% and 84%, respectively and LTM revenue and EBITDA multiples of 6.5x and 21.6x, respectively, all of which are higher than all precedent life science tools transactions (1) (2) [] Precedent life science tools transactions have median 1-day and 1-month average premiums to the unaffected stock price of 33% and 37%, respectively and LTM revenue and EBITDA multiples of 3.3x and 16.0x, respectively (3) -- Implies a valuation multiple of 34.2x 2012E net income, which is higher than all of the company's publicly traded peers (4) [] Offer is being increased in response to dialogue with Illumina shareholders -- In light of continued refusal by Illumina to engage in constructive dialogue, Roche has increased its offer in an effort to conclude a negotiated transaction with Illumina -- Desire to engage in meaningful dialogue and conduct due diligence -- By not engaging with Roche, Illumina reinforces the notion that its Board is entrenched and not focused on shareholder value -- Absent ability to interact with Illumina, Roche has no choice but to continue to pursue a transaction unilaterally Source: FactSet, Capital IQ, I/B/E/S consensus, Bloomberg. (1) Premiums based on unaffected closing share price of $27.17 on 12/21/2011, the day prior to market rumors about a potential acquisition of Illumina by Roche. (2) LTM as of 12/31/2011. 4 (3) Includes selected announced, closed and effective transactions with targets in the biotechnology research equipment manufacturers and biological products and life sciences tools and services manufacturers sectors since 2006. (4) Includes Thermo Fisher, Becton, Dickinson, Agilent, Life Technologies, Sigma-Aldrich, Waters, Mettler-Toledo, Qiagen, PerkinElmer, Bio-Rad Laboratories, Bruker and Techne. |
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Executive Summary (Cont'd) Roche is increasing its all-cash offer to acquire Illumina to $51.00 per share. [] Illumina has continually emphasized significant growth opportunities for sequencing in clinical settings as well as industrial end markets -- However, no detail has been provided as to how Illumina will be able to exploit such opportunities -- No other evidence or quantitative support has been provided to reassure shareholders of when or how this growth will be realized [] In fact, since Roche's private offer, the only company news has surrounded an increasing competitive landscape with product-related announcements from Oxford Nanopore and Life Technologies [] Additionally, company guidance for 2012 is in line with where research analyst expectations were in December 2011, at which time the median price target was $32.00 per share -- Prior to the offer being made public, Illumina median price targets were at $34.00 per share, 33% below Roche's offer [] Illumina's pre-offer P/E/G of 1.51x was in line with its 1, 2 and 3 year averages and P/E/G of peers (1) -- 2.06x implied P/E/G of Roche's offer is 16% above any P/E/G Illumina has traded at for the past three years 5 Source: FactSet, Capital IQ, I/B/E/S consensus, Bloomberg. (1) Includes Thermo Fisher, Becton, Dickinson, Agilent, Life Technologies, Sigma-Aldrich, Waters, Mettler-Toledo, Qiagen, PerkinElmer, Bio-Rad Laboratories, Bruker and Techne. |
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Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion 6 |
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Notable Recent Events for Illumina Over the past year, Illumina has underperformed its peers and the broader market. [] Illumina's stock dropped as much as 60% from its 52-week high because of several factors, including: -- Twice-lowered revenue guidance after a drop in orders due to the constrained government spending environment [] Government and academic clients account for 80% of Illumina's sales [] Demand for its products was boosted by the 2009 stimulus package, but this funding is being reduced -- A shift in buyer preferences from high-cost, high-capacity machines ($500k+) to low-cost, low-capacity machines ($50k+) and uncertainty around this product line transition -- Increased competition in its low-cost product line from Life Technologies and Oxford Nanopore [] Illumina is still facing revenue headwinds due to an unclear government spending picture -- Visibility of the FY 2013 budget for the National Institute of Health (NIH) remains clouded -- The NIH is a significant customer of Illumina (approximately one-third of sales) [] Illumina's pre-announcement of 2011 earnings at the JPMorgan Healthcare Conference in mid-January was seen as a positive sign for the company -- Illumina also introduced the HiSeq 2500, which can sequence an entire human genome in a day and will help Illumina match competitive threats from Life Technologies and Oxford Nanopore -- However, in spite of these positive announcements, Illumina's stock price only increased 3.7% on the day of announcement [] Illumina reinstated guidance for FY 2012 on its Q4 2011 earnings call, removing substantial amount of near-term uncertainty -- However, Illumina management provided lowest ever growth guidance -- Guidance was in-line with where analysts were before the JPMorgan Healthcare Conference when median price target was $32.00 per share 7 Source: FactSet, Bloomberg. |
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Illumina's Business Faces Significant Challenges [] All-cash offer transfers 100% of risk from Illumina's shareholders to Roche [] Maturing market and unsettled global economic conditions imply reduced growth prospects [] Uncertainty around longer-term outlook for genetic funding by NIH and other U.S. and foreign government organizations -- Illumina's sales are vulnerable due to its highly concentrated sales exposure to government and academic spending [] Increasingly competitive landscape -- Recent Life Technologies and Oxford Nanopore announcements around new product introduction / enhanced product capabilities [] Advances in technology -- Single molecule / nanopore technologies currently being developed [] Speculative nature around Illumina's announced single molecule chemistry -- Multiple competitors in RandD [] Illumina has little experience in regulated areas such as diagnostics that require significant biological expertise as well as interactions with the FDA [] Illumina meaningfully complements Roche's strategy around enabling personalized healthcare -- Roche is willing to take a longer term view in light of strategic importance -- Utilize Roche's comprehensive diagnostic expertise and global reach to accelerate transition of sequencing to routine clinical use -- Roche provides capabilities and reach that Illumina does not possess in-house 8 |
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However, Roche is Best Positioned to Overcome these Identified Challenges Roche's global reach and expertise in diagnostics will allow Roche to reinvigorate Illumina's growth in ways unattainable as a standalone company. [] Roche is better positioned to make the type of investments that are required for long term success -- Roche is uniquely positioned to expand Illumina's end markets from both a geographic and customer mix perspective -- Rapidly evolving technologies may put additional risk to Illumina's business over the next several years -- Funding environment may remain challenging for an extended period of time -- Roche intends to invest in growth, key employees and technologies [] Illumina is a strong fit with Roche's diagnostics and Applied Science business and complements Roche's portfolio in sequencing and microarrays and strengthens offering in genomics research and diagnostics -- The combined capabilities will strengthen Roche's position in sequencing and microarrays to address the growing demand for genetic / genomic solutions -- An acquisition of Illumina will strengthen Roche's position in the life science and diagnostics market -- Roche's extensive diagnostics experience and global presence could help accelerate the 9 transition of DNA sequencing into clinical and routine diagnostics |
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Offer Summary
Roche's all-cash offer of $51.00 per share is highly attractive, providing full
and certain value to Illumina's shareholders.
Consideration [] $51.00 per share, all-cash
Unaffected Price [] $27.17 on 12/21/2011
Premium [] 88% to unaffected 1-day (1)
[] 84% to unaffected 1-month average (1)
Valuation [] 34.2x 2012E net income based on current estimates (2)
[] 21.6x LTM EBITDA (3)
Financing [] No condition, financed from available cash on Roche's
balance sheet and/or borrowings under its credit facilities
Anti-Trust [] On March 13(th), the FTC made a second request regarding
Roche's microarray business
Shareholder Proposals [] Roche has nominated six highly qualified independent
directors for Illumina's Board
[] Roche has proposed to amend Illumina's bylaws to expand
Illumina's Board so that Roche-nominated directors will
comprise a majority
Source: FactSet, Capital IQ, I/B/E/S consensus, Bloomberg.
(1) Premiums based on unaffected closing share price of $27.17 on 12/21/2011,
the day prior to market rumors about a potential acquisition of Illumina by
Roche. (2) Based on I/B/E/S consensus estimate as of 3/28/2012.
(3) LTM as of 12/31/2011.
10
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Key Events
Event Date
Record Date [] March 8, 2012
---------------------------------------------- ----------------- ----
Illumina's Annual Shareholder Meeting [] April 18, 2012
---------------------------------------------- ----------------- ----
Expiration of Roche's Tender Offer [] April 20, 2012
11
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Situation Overview After multiple attempts to engage with Illumina were rebuffed, Roche has taken its offer directly to Illumina's shareholders. [] On November 1, 2011, a member of Roche's Board spoke with Illumina's Chairman and expressed Roche's interest in Illumina and requested a meeting. Illumina agreed to a meeting in San Diego on December 13, 2011 [] On December 13, 2011, Roche's Chairman and the Roche Board member met with Illumina's CEO and Chairman to discuss Roche's strategic interest in Illumina [] On December 21, 2011, Roche's Chairman indicated to Illumina that Roche would be willing to consider a price of up to 50% over Illumina's then-current share price of $26.71 -- On December 22, 2011, a news story was published speculating about a transaction between the parties, causing Illumina's stock price to jump by 7% [] On December 28, 2011, Illumina's CEO told Roche's Chairman that Illumina would probably be unable to convene its Board until the end of January, but would try to consider the Roche proposal sooner than that [] On January 3, 2012, Roche sent Illumina a private letter to formally propose an all-cash offer of $40.00 per share [] On January 17, 2012, Illumina convened a Board meeting and on January 19, its CEO sent a letter to Roche formally rejecting the $40.00 per share offer [] On January 25, 2012, Roche announced an all-cash offer to acquire Illumina for $44.50 per share [] On January 31, 2012, Roche announced its nomination of a slate of six independent directors and intention to expand the size of Illumina's Board [] On February 7, 2012, Illumina's Board unanimously recommended that shareholders reject Roche's offer [] On March 19, 2012, Illumina announced it would hold its annual shareholder meeting on April 18, 2012 [] On March 29, 2012 Roche's Chairman reached out to Illumina's CEO and informed him of the increased offer price and suggested that the two companies engage in dialogue 12 |
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Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion 13 |
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Heightened Competition Increases Uncertainty of Illumina's Growth Prospects Oxford Nanopore [] On February 17, 2012, Oxford Nanopore unveiled high performance electronic sequencing devices GridION and MinION [] MinION System, a disposable DNA sequencing device the size of a USB memory stick, is expected to price at less than $900 per unit and is capable of sequencing DNA directly from blood with throughput of 10's of Gb per 24 hours [] Analysts believe Oxford Nanopore's new devices could have a disruptive effect on the DNA sequencing market and may dampen future growth potential for Illumina "For both LIFE and ILMN this will lead to questions on the future growth potential (especially in 2013 and beyond) for their sequencing franchises and we are seeing that in the pressure that both stocks are under today. While the Roche takeout attempt has provided some support for ILMN shares, much of the multiple expansion in LIFE shares in 2012 has been driven by excitement for their PGM/Ion Proton sequencing technology. Today's presentation from ONT could dampen much of that enthusiasm for LIFE." - Credit Suisse, February 17, 2012 "Oxford Nanopore Exceeds Expectations. In what has been an otherwise quiet AGBT, privately held Oxford Nanopore presented additional details on the company's sequencing pipeline. While it is not a surprise that the company is planning to launch a sequencer in 2H2012, we believe newly revealed plans for a "thumb-drive" like sequencer, the initial pricing plans, and initial specs exceeded expectations. While we will present more details in our wrap up note, some highlights include up to 40K bp reads, an error rate of only 4%, and pricing that is well below the competition (including an option for virtually no capital cost)." - Cowen, February 17, 2012 "The data was well above expectations in almost every way: throughput, read length, ease of use, level of sample prep, accuracy, run time and costs... Although we need to see how the technology behaves in the hands of scientists, if it works as promised and ONT can execute on its commercialization plan, then this could have a disruptive effect on the DNA sequencing market and is a negative for sequencing companies like LIFE, ILMN and PACB, as well as array providers like AFFX." - Bank of America Merrill Lynch, February 17, 2012 Life Technologies [] On January 10, 2012, Life Technologies announced it had begun taking orders for its new $149,000 benchtop Ion Proton Sequencer that is designed to sequence the entire human genome in a day for $1,000 [] Analysts believe Ion Proton will make Life Technologies newly competitive in the high-end sequencing market (currently dominated by Illumina) and also may improve Life Technologies' offerings to small research labs and clinical settings "Today, Life Technologies announced the release of a new DNA sequencer, the Ion Proton. Priced at $149k, this is a natural product line extension over the PGM (priced at $49,000) and shipments will begin in mid-2012, with early access customers receiving the system in early 2Q12. The first chip (Proton 1 -- for exome sequencing, $699) will be available in mid-2012 and the second (Proton II -- for whole human genome sequencing, $1,000) will be available about 6 months later (YE2012)." "The introduction of the Ion Proton will crowd the high-end of the DNA sequencing market with its unique capabilities -- namely speed. We also note the quality of early access customers referenced in the press release (Nusbaum at Broad, Gibbs at Baylor, Lifton at Yale), all of whom are leading minds in the field and whose opinions will carry weight among customers. We therefore view this news as a negative for competing high-end platforms (Illumina HiSeq, Life Technologies SOLiD, Pacific Biosciences RS) given the constrained funding environment." - Goldman Sachs, January 10, 2012 "Ion Proton specs imply a game changer. In addition to per genome and system cost, the Ion Proton is purported to bring industry leading speed without the need for an outsized IT investment. Even without details on accuracy, systems specs imply serious competition for other NGS providers." "Based on the technology underpinning the Ion Torrent, the Ion Proton will be able to sequence a genome in one day for $1,000. Life will strategically target Illumina's core HiSeq markets: genomic centers, mid size labs, cores and centralized testing labs." - Oppenheimer, January 10, 2012 14 |
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Gene Sequencing Market Continues to Mature Illumina's statements around its substantial near term growth opportunities are not consistent with the views of the broader equity research community. [] Technological innovation continues to put pressure on pricing [] Growth prospects have weakened, as macro-economic headwinds as well as government and institutional/academic funding constraints pose secular challenges Diminishing Outlook on the Sector "Although it remains to be seen how future specifications will evolve, the one certainty today is that we are in for a period of heightened competition for share across the throughput spectrum in sequencing, with the Ion PGM vs. MiSeq at the low throughput end, and the Ion Proton vs. the HiSeq at the high throughput end. This battle for share will likely play out as costs decline and profitability for sequencing providers potentially comes under pressure. Also, note that the backdrop is one of funding constraints (concerns of significant cuts to the NIH budget in 2013, European macro pressures)." Barclays, January 11, 2012 Illumina 2-Year Forward Growth Expectations (Revenue CAGR) (1) 44.4% 29.9% 24.6% 18.8% 17.7% 5.9% Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Illumina 2-Year Forward Growth Expectations (Adjusted EPS CAGR) (1) 35.5% 31.7% 29.4% 30.3% 18.9% 13.3% Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Source: Company filings, Capital IQ. (1) 2-Year forward growth expectations based on prior year actual results and 2-year forward I/B/E/S consensus estimates as of January 1 of the respective year. 15 |
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Diminishing Illumina Growth Prospects
Lowest growth guidance ever provided by Illumina management despite the
disappointing 2011 results, which provided a lower base for year-over-year
comparison in 2012.
Illumina Management Guidance
Revenue
39.5%
Lowest level of
23.0%
20.0% 20. 0% guidance provided
7.5%
(1) '07 - '08 '08 - '09 '09 - '10 '10 - '11 '11 - '12
Adjusted EPS (2)
36.0%
30.0% Lowest level of 25.0% guidance provided
18.8%
11.5%
(1) '07 - '08 '08 - '09 '09 - '10 '10 - '11 '11 - '12
Source: Company filings and Bloomberg.
Note: Guidance reflects initial guidance provided by Illumina management for
the upcoming year.
(1) Reflects midpoint of 2012E revenue guidance of $1,100 -- $1,175mm and EPS
guidance of $1.40 - $1.50.
(2) 2007-2011 guidance based on initially reported Adjusted EPS; 2008 guidance
adjusted by estimated stock based compensation expense based on 2007 amount.
16
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Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion 17 |
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Illumina's Share Price Has Underperformed Peers
Over the past 3-years, Illumina has underperformed its peers and the broader
market.
Indexed Price Performance From January 2009 -- January 2012
300.0%
Recent Management Performance
[] Missed quarterly earnings twice in 2011
250.0%
[] Suspended forward guidance in October 2011
[] Refused to engage in dialogue with Roche
200.0%
------ ------
60.5%
58.0%
150.0%
--- ------ ------ ------ ------ ---------------- ------
Indexed Price Performance
35.8%
100.0%
===
50.0%
--- ------ ------ ------ ------ ---------------- ------ ------ ------ ------ ------ ------
------
--
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11
Jan-12
Illumina Peer Index S and P 500
Source: FactSet as of 1/24/2012. 18 Note: Peer Index includes Thermo Fisher,
Becton, Dickinson, Agilent, Life Technologies, Sigma-Aldrich, Waters,
Mettler-Toledo, Qiagen, PerkinElmer, Bio-Rad Laboratories, Bruker and Techne.
Stock price data weighted based on market capitalization.
|
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Illumina Share Price Decline Driven by Diminishing Growth Prospects
Illumina Share Price Post Earnings
Release (1)
$70.65
$69.44
$57.33
52.5% decline in stock price
$33.01
$30.80
---------- ------ ------ -------- -------------------
Q4'10 Q1'11 Q2'11 Q3'11 Pre-Ann.(2)
Illumina 2-Year Forward Growth Estimates
(Adjusted EPS)
34.3%
30.3%
24.1%
65.1% decline in 2-Year forward
growth expectations
12.0%
11.1%
------------- ----- ----- ----- -------------------------
Q4'10 Q1'11 Q2'11 Q3'11 3/28/12
Source: FactSet, Capital IQ, I/B/E/S consensus as of 3/28/2012.
Note: 2-Year forward growth estimates based on growth estimates for following
eight quarters.
(1) Post earnings release prices and growth estimates as of 2/9/2011,
4/27/2011, 7/27/2011 and 10/25/2011.
(2) Pre-offer price as of 1/10/2012, the day Illumina pre-announced 2011
revenue and adjusted EPS.
19
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Illumina Valuation Over Time
Until recently, Illumina's projected revenue and net income growth were well
above its peer average. As this gap in growth between Illumina and its peers
has closed, the gap in valuation between them has narrowed.
Share Price Performance From January 2009 -- January 2012
$80
[] Prior to the Q2 2010 stock run up, Illumina had traded between $20 - $40 for ~3 years
------
[] Run-up was driven by significant growth expectations
-- Justifying premium P/E multiple to peers
$60 [] Similarly, recent stock price has been driven by meaningful decline in growth prospects
------
-- Still traded at premium P/E despite lower growth expectations relative to peers
------
=======
3
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-------
$40
----------- ------ -------------------------- ====== --------------------------- ---------
------ -------
1 2
------- ----------- ------ ------ -------------------------- ====== =========================== ------ ------ ------ =========
------ ------ -------
$20
Jan-09 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 May-10 Aug-10 Nov-10 Feb-11 May-11
Jul-11 Oct-11 Jan-12
Valuation
1. Start of Run-up (Q1 2010)
Peer
Illumina
Median
======== ======
LTM Net Income $90
NTM Net Income (proj.) 145
% Growth 61.1% 8.4%
NTM Revenue Growth 24.7% 8.2%
====================== ======== ======
2. Peak Period (Q1 2011)
Peer
Illumina
Median
======== ======
LTM Net Income $166
NTM Net Income (proj.) 230
% Growth 38.8% 8.9%
NTM Revenue Growth 19.5% 7.3%
====================== ======== ======
3. Unaffected (1)
Peer
Illumina
Median
======== ======
LTM Net Income $173
NTM Net Income (proj.) 192
% Growth 10.9% 10.5%
NTM Revenue Growth 4.2% 8.0%
====================== ======== ======
45.0x 38.5x
30.0x
NTM P/E 16.9x
15.0x
-------- -----------
--
Illumina Peer Median
42.7x
45.0x
30.0x
NTM P/E 19.1x
15.0x
-------- -----------
--
Illumina Peer Median
45.0x
30.0x
17.8x
NTM P/E 13.0x
15.0x
-------- -----------
--
Illumina Peer Median
Source: Company filings, FactSet, I/B/E/S consensus.
Note: Equity value and estimates as of 10-days post announcement; net income
represents non-GAAP adjusted net income.
(1) Calculated using Illumina's share price of $27.17, publicly available
filings and consensus analyst estimates as of December 21, 2011, the day prior
to market rumors about a potential acquisition of Illumina by Roche.
20
|
 |
Illumina Rolling NTM P/E/G Analysis
Roche's offer implies a price-to-earnings-growth ratio that is a 16% premium to
Illumina's three-year high and well above its three-year average.
2.25x
Offer: 2.06x
2.00x
Initial Public Offer: 1.75x
45% Premium
1.75x
to three-year
NTM P/E/G
average
1.50x
Pre-Offer: 1.51x (1)
Two-year avg.: 1.47x
Three-year avg.: 1.42x
One-year avg.: 1.40x
1.25x
Unaffected: 1.07x (2)
1.00x
0.75x
------ ------ ------ ------ ------ ------ ------ --------- ------------- ------ ------- ------------
0.50x
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12
Source: Company filings, Bloomberg, Capital IQ, I/B/E/S consensus, and FactSet.
(1) Calculated using Illumina's share price of $37.69, publicly available
filings and research consensus estimates as of January 24, 2012, the day prior
to the public announcement of Roche's offer of $44.50 per share for Illumina.
(2) Calculated using Illumina's share price of $27.17 as of 12/21/2011, the
day prior to market rumors about a potential acquisition of Illumina by Roche,
publicly available filings and consensus analyst estimates as of January 24,
2012, the day prior to the public announcement of Roche's offer of $44.50 per
share for Illumina.
21
|
 |
Absent Roche's Offer, Illumina Would Likely be Trading at Much Lower Levels
P/E/G Adj. Price
3-Year Avg. Forward P/E/G 1.42x
Current LT Consensus Growth Rate 16.6%
=======
Implied Forward P/E 23.6x
2012E EPS Guidance (1) $1.45
=================================== =======
P/E/G Adj. Price $34.20
$60.00
Actual Stock Performance
P/E/G Adj. Price
------ ----------------------------- ------
$55.00
Offer: $51.00
---------------
$50.00 $49.88 Current
$45.00 Initial Public Offer: $44.50
---------------
Discount to
Roche's Offer:
33%
$40.00
$35.00 $34.20 P/E/G Adj. Price
----- ------ ---------------
Roche makes offer
$30.00 public, increasing the
all-cash offer to $44.50
------ ----- ----------------------- ============================= ---------------
$25.00 Increase in Illumina's share Illumina price movement of 3.7% based on 2011
price following rumors of results and product updates at JPM Healthcare
takeover speculation Conference
==================================== ====================== ====== =============== ------
$20.00
21-Dec 4-Jan 18-Jan 1-Feb 15-Feb 29-Feb 14-Mar 28-Mar
Source: Company filings, Bloomberg, Capital IQ, I/B/E/S consensus, and FactSet
as of 3/28/2012.
(1) Reflects midpoint of Illumina 2012E EPS management guidance of $1.40 -
$1.50.
22
|
 |
Absent Roche's Offer, Illumina Would Likely be Trading at Much Lower Levels
(Cont'd)
Estimated Unaffected Price
[] Starting point is Illumina's unaffected stock price as of 12/21 close
($27.17) (1)
[] From 12/22 to 1/9, Illumina increases or decreases by the same percentage
each day as its peer index
[] On 1/10 (day of JPMorgan Conference announcement), Illumina increases by the
actual increase (3.7%)
[] On 1/11 and after, Illumina increases or decreases by the same percentage
each day as its peer index
$60.00
Actual Stock Performance
Estimated Unaffected Price
------------------------------------
$55.00
Offer: $51.00
----------------------- ------------------- ---------------------
$50.00 $49.88 Current
$45.00 Initial Public Offer: $44.50
----------------------- -------------------
Discount to
Roche's Offer:
$40.00 35%
$33.04 Estimated
$35.00 Unaffected Price
------ ------------------- ------
$30.00 Roche makes offer
public, increasing the
all-cash offer to $44.50
------ ----- ----------------------- ================================= -----------
$25.00
Increase in Illumina's share Illumina price movement of 3.7% based on 2011
price following rumors of results and product updates at JPM Healthcare
takeover speculation Conference
==================================== ========================== ====== =========== ---------
$20.00
21-Dec 4-Jan 18-Jan 1-Feb 15-Feb 29-Feb 14-Mar 28-Mar
Source: FactSet as of 3/28/2012.
Notes: Peer Index includes Thermo Fisher, Becton, Dickinson, Agilent, Life
Technologies, Sigma-Aldrich, Waters, Mettler-Toledo, Qiagen, PerkinElmer,
Bio-Rad Laboratories, Bruker and Techne. Stock price data weighted based on
market capitalization.
(1) Based on unaffected closing share price of $27.17 on 12/21/2011, the day
prior to market rumors about a potential acquisition of Illumina by Roche.
23
|
 |
Absent Roche's Offer, Illumina Would Likely be Trading at Much Lower Levels
(Cont'd)
P/E Adj. Price
[] Starting point is Illumina's P/E multiple as of 12/21 (17.8x), which
represents a premium of 4.8x compared to the peer median of 13.0x (1)
[] From 12/22 to 1/9, Illumina's multiple is assumed to be 4.8x higher than the
median of its peers
[] On 1/10 (day of JPMorgan Conference announcement), Illumina's multiple
increases by 0.8x (from 21.0x to 21.8x) whereas the peer's median multiple
increases by 0.1x, representing a premium of 0.7x for Illumina (2)
[] On 1/11 and after, Illumina's multiple is assumed to be 5.5x higher (an
increase of 0.7x from the previous 4.8x) than the median of its peers
$60.00
Actual Stock Performance
P/E Adj. Price
------ ----------------------------- ----------
$55.00
Offer: $51.00
---------------- --------
$50.00 $49.88 Current
Initial Public Offer: $44.50
$45.00
---------------- -------- --------
Discount to
Roche's Offer:
$40.00 38%
----------------------
$35.00
$31.84 P/E Adj. Price
------ ---------- ----------------
$30.00 Roche makes offer
public, increasing the
all-cash offer to $44.50
------ ------ ---------------------- ==================================== --------
$25.00 Increase in Illumina's share Illumina price movement of 3.7% based on 2011
price following rumors of results and product updates at JPM Healthcare
takeover speculation Conference
==================================== ========== ================ ======== ======== ------------------------
$20.00
21-Dec 4-Jan 18-Jan 1-Feb 15-Feb 29-Feb 14-Mar 28-Mar
Source: Company filings, Bloomberg, Capital IQ, I/B/E/S consensus, and FactSet
as of 3/28/2012. Note: Reflects midpoint of Illumina 2012E EPS management
guidance of $1.40 - $1.50.
(1) Based on unaffected closing share price of $27.17 on 12/21/2011, the day
prior to market rumors about a potential acquisition of Illumina by Roche.
(2) Reflects incremental P/E multiple expansion vs. peers post JPMorgan
Healthcare conference and earnings pre-release on 1/10/2012.
24
|
 |
Illumina 2012 Guidance in Line with Pre-JPM Healthcare Conference Consensus
Estimates
[] Illumina's pre-announcement of earnings and signal on 2012 guidance had
minimal impact on analysts' price targets
[] Pre-JPM Healthcare Conference, the median Illumina price target was $32
Pre-JPM Conference Metrics Comparison to Company Guidance (1) Price Target
Broker 2012E Revenue
Date $mm Variance % Variance Pre-JPM
($mm)
Credit Suisse 1/9/2012 $1,070 $67 6.3% $30.00
Piper 1/6/2012 1,137 0 0.0% 30.00
Cantor Fitzgerald 1/5/2012 1,122 16 1.4% 35.00
William Blair 1/4/2012 1,088 50 4.5% N.A.
BAML 1/4/2012 1,055 83 7.8% 32.00
UBS 1/4/2012 1,115 23 2.0% 32.00
Wedbush 12/8/2011 1,145 (8) (0.7%) 35.00
Cowen 12/5/2011 1,093 44 4.0% N.A.
Credit Agricole 11/30/2011 1,105 33 2.9% 30.00
Macquarie 11/25/2011 1,063 75 7.0% 27.00
RBC 10/27/2011 1,147 (9) (0.8%) 29.00
Maxim 10/26/2011 1,168 (31) (2.6%) N.A.
Barclays 10/26/2011 1,126 12 1.0% 33.00
Goldman Sachs 10/26/2011 1,080 57 5.3% 32.00
Auriga 10/26/2011 1,206 (69) (5.7%) 47.00
Baird 10/26/2011 1,108 29 2.6% 30.00
Deutsche Bank 10/25/2011 1,040 98 9.4% 29.50
Leerink 10/25/2011 1,079 59 5.4% N.A.
JPMorgan 10/25/2011 1,004 134 13.3% 44.00
Mizuho 10/25/2011 1,185 (47) (4.0%) 40.00
Oppenheimer 10/25/2011 1,046 92 8.7% N.A.
=============== ================ ============== ===================== ============
Mean $1,104 $34 3.2% $33.47
Median $1,105 $33 2.9% $32.00
=============== ================ ============== ===================== ============
Source: Wall Street research.
(1) As compared to $1,138 million, the midpoint of Company guidance of $1,100
to $1,175 million for 2012E sales.
25
|
 |
Analyst Observations
"What is debatable is Illumina's growth potential
over the next 2-3 years (investment time horizon for the majority of the
shareholders, in our view), which we estimate is significantly below market
projections when shares were trading at >$70/share, as well as Illumina's
potential for success in Dx as a standalone company (vs. under Roche). Despite
Illumina's breathtaking technologies, we think Sung Ji Nam end market growth
potential is a more important determinant for valuation, and with the
sequencing based (2/8/2012) clinical diagnostic market still in early stages,
6-7x fwd sales valuation (as implied by share price of $60-70, at the high end
of guidance) is unattractive even for Roche."
"From our perspective the quarter was a mixed bag, as HiSeq consumable
pull-through was marginally better sequentially but well off the previous
year's highs. In addition, microarray revenue was again down and management now
sees this business as flattish in 2012. On the bright side, demand for the
MiSeq has been brisk with solid interest from clinical markets, underscoring
the large bench-top NGS
David Ferreiro opportunity. Guidance for 2012 seems achievable; however, the
midpoint of revenue guidance will
(2/8/2012)
bring ILMN into uncharted territory of single digit growth, a reasonable
scenario given the potential competition."
"While we agree with management's view that near
term academic funding uncertainty masks the longer term growth opportunities,
we think that the timeline for benefiting from these new markets remains Ross
Muken highly uncertain. "
(2/7/2012)
26
|
 |
Illumina's Actions Suggest Bearish View of Stock Price
[] Throughout the first half of 2011, Illumina repurchased stock in the $60's
and $70's
[] However, after suspending forward guidance and highlighting a pull-back in
academic research spending, Illumina ceased its share repurchases
[] Most recently in its 14D-9, Illumina stated that its recent stock price
decline is a "temporary dislocation"
[] If Illumina believed its stock price were temporarily dislocated, prudent
corporate finance would have been to execute a meaningful share repurchase or
retire the out-of-the money warrants, especially given ample cash flow
generation in Q4 2011
-- Such lack of activity (after previously buying back shares at high price
levels) calls into question whether Illumina viewed its Q4 stock price as a
"temporary" dislocation
Q1'2011 Buyback: $338mm Q2'2011 Buyback: $28mm Q3'2011 Buyback: $204mm Q4'2011: Did not
buy back
($64.53 avg. cost per share) ($71.07 avg. cost per share) ($56.89 avg. cost per share) any shares or
warrants
------------------------------------------- ---------------------------- ----------------------------
-------------------------
$80.00
---
$60.00
Share Price
$40.00
----------------------- ----------- ---------------- --- ------------------------ -----------
-------------
$20.00
Jan-11 Mar-11 May-11 Jun-11 Aug-11 Oct-11
Dec-11
Source: Company filings.
27
|
 |
Illumina's Actions Suggest Bearish View of Stock Price (Cont'd)
[] When Illumina repurchased its 2014 convertible debt and unwound the
corresponding bond hedge (Illumina's right to purchase 18.3mm Illumina shares
at $21.83), Illumina did not retire warrants related to the convertible bond
call spread (counter-parties' right to purchase 18.3mm Illumina shares at
$31.435)
[] In Q4 2011, the intrinsic value of the warrants was $0 (as Illumina's share
price was below the warrant strike price)
-- Given Illumina's cash balance of $1.1bn, the company had sufficient means to
extinguish the warrants
[] If Illumina believed its stock price was only temporarily dislocated, an
attractive alternative would have been for Illumina to repurchase the warrants
from Goldman Sachs and Deutsche Bank
-- Using assumptions from the 14D-9, it is clear that the value of this
unbounded liability can grow by hundreds of millions of dollars if Illumina's
stock price recovers
-- Leaving such a volatile and unbounded liability in place contradicts
Illumina's stated belief of "temporary" dislocation in their Q4 stock price
Pre-Offer Pre-Offer
Post-Offer
Intrinsic Value of Time Value of
Intrinsic and Time Value of
Counterparty Warrants Counterparty Warrants
Counterparty Warrants
$500
$488
$400
$300
$200 $163
Warrant Value ( $ in mm) $100
$0
-------------------------------------------------------------
----------------------------------------------------------- ----------------------------------------------------------
--
(1) (1)
12/21/2011 12/21/2011
2/6/2012
@ $51.00 Offer
Source: Company filings.
Note: All warrant values based on implied volatility of 61.1%, derived from 14D-9 disclosure calculated by
assuming the $273 million estimated in the 14D-9 to be owed to Goldman Sachs if
the Roche $44.50 offer were consummated on February 6, 2012 represents the aggregate value of the
warrants held by Goldman Sachs; full warrant value based on grossing up the
$273mm estimated to be owed to Goldman Sachs in the 14D-9 to include the amount of warrants held by
other counterparties.
(1) Represented illustrative warrant value as of unaffected date.
28
|
 |
Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion 29 |
 |
Offer Multiples Above All Peers
Roche's offer values Illumina well above any of its peers based upon a P/E
multiple. Even after adjusting for growth, the P/E/G multiple is well above the
peer median P/E/G.
2012E P/E
34.2x
29.6x
25.3x
20.5x 20.3x
18.6x 18.4x 18.2x 18.0x 16.5x 16.4x
Median: 16.4x
----- ----- ----------------- -----
13.9x 13.8x 13.7x 12.6x
12.3x
------------- ---------------------------------- ----- ----- ----- ----- ----- ----------------- ----- ----- ----- ----- ----- -----
--------
Illumina Illumina (2) Illumina TECH MTD SIAL BIO WAT Illumina QGEN BRKR BDX A PKI TMO
LIFE
(Offer) (1) (1/24 Offer) (Pre-Offer)(3) (Unaffected)(4)
2012E P/E/G
2.06x 2.04x 1.94x 1.93x
1.79x 1.77x 1.73x
1.51x 1.51x 1.41x
Median: 1.46x
1.30x 1.24x
1.10x 1.07x
1.03x 0.98x
------------- ----------------------- ----- ----- ----- ----- ----- ----- ---------------- ----- ----- ----- ----- -----------------
----- ----------
Illumina Illumina SIAL BIO TECH QGEN BDX WAT Illumina MTD LIFE PKI BRKR Illumina
TMO A
(Offer) (1) (1/24 Offer) (2) (Pre-Offer)(3) (Unaffected)(4)
Source: Company filings, Bloomberg, Capital IQ, I/B/E/S consensus, analyst
research as of 3/28/2012.
Note: All Illumina statistics excluded from median calculations. Financials
have been calendarized to 12/31 FYE. (1) Represents an offer price of $51.00
per share.
(2) Represents an offer price of $44.50 per share.
(3) Calculated using Illumina's share price of $37.69, publicly available
filings and I/B/E/S consensus estimates as of January 24, 2012, the day prior
to the public announcement of Roche's offer of $44.50 per share for Illumina.
(4) Calculated using Illumina's share price of $27.17 on December 21, 2011,
the day prior to market rumors about a potential acquisition of Illumina by
Roche, and publicly available filings and I/B/E/S consensus estimates as of
January 24, 2012.
30
|
 |
Offer Multiples Above Precedents
Roche's offer is at the high end of valuation multiples paid in recent
precedent life science tools transactions.
Enterprise Value / LTM Revenue
7.0x 6.5x
6.0x 5.6x
4.9x
5.0x 4.3x
4.0x 3.3x
Median: 3.3x
---------------------- -------------------
-------------------------------------
3.3x 2.9x
---------------
3.0x
2.0x
1.5x
1.0x
-------------- ------------------ ---------------------- ---------------------- ------------------- ---------------
-------------------- ----------------
--
Roche's Offer Roche's 1/24 Offer Thermo Fisher / Dionex Merck KGaA / Millipore GE Health / Whatman MDS / Molecular Invitrogen
/ Applied Agilent / Varian
($51.00/share) ($44.50/share) 12/13/10 02/28/10 02/04/08 01/29/07
06/12/08 07/27/09
Enterprise Value / LTM EBITDA
25.0x
21.6x 20.6x
20.0x 18.5x 18.1x 17.6x
Median: 16.0x
---------------------- ---------------------- --------------- --------------------
15.0x 14.3x
13.3x
11.7x
10.0x
5.0x
-------------- ------------------ ---------------------- ---------------------- --------------- --------------------
------------------- ----------------
--
Roche's Offer Roche's 1/24 Offer Thermo Fisher / Dionex Merck KGaA / Millipore MDS / Molecular Invitrogen / Applied GE Health
/ Whatman Agilent / Varian
($51.00/share) ($44.50/share) 12/13/10 02/28/10 01/29/07 06/12/08
02/04/08 07/27/09
Source: Company filings, Bloomberg, Capital IQ, I/B/E/S consensus.
Note: Includes selected announced, closed and effective transactions since 2006
in the biotechnology research equipment manufacturing and biological products
and life sciences tools industries. Roche offer excluded from median
calculations. LTM Illumina statistics as of 12/31/2011.
31
|
 |
Offer Premiums Above Precedent Transactions
Unaffected Premiums
1 Day Premiums
Roche's Offer
88%
($51.00/share)
Roche's 1/24 Offer
64%
($44.50/share)
Merck KGaA /
Millipore 50%
02/28/10
MDS / Molecular
49%
01/29/07
Illumina / Solexa
44%
11/13/06
Agilent / Varian
33%
07/27/09
Thermo Fisher / Median: 33%
Dionex 21%
12/13/10
Invitrogen / Applied
17%
06/12/08
GE Health / Whatman
12%
02/04/08
-------- ---- ---------- --- --- -------
-- 20% 40% 60% 80% 100%
1 Month Average Premiums
Roche's Offer
84%
($51.00/share)
Roche's 1/24 Offer
61%
($44.50/share)
MDS / Molecular
56%
01/29/07
Merck KGaA /
Millipore 53%
02/28/10
Illumina / Solexa
42%
11/13/06
Agilent / Varian
37%
07/27/09
Thermo Fisher / Median: 37%
Dionex 28%
12/13/10
GE Health / Whatman
19%
02/04/08
Invitrogen / Applied
12%
06/12/08
------------ ------- --------------- --- --- ----
-- 20% 40% 60% 80% 100%
Source: Company filings, Bloomberg, FactSet.
Note: Includes announced, closed and effective transactions since 2006 in the
biotechnology research equipment manufacturing and biological products and life
sciences tools industries Roche offers excluded from median calculations.
1 day and 1 month average based on starting date of 12/21/2011, the day prior
to market rumors about a potential acquisition of Illumina by Roche.
32
|
 |
Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion |
 |
Pro-Shareholder Governance Proposals
Roche's proposals place control of Illumina with its own shareholders.
Roche's Proposals Rationale for Proposals
[] Fill the four directorships up for election with Roche's
nominees
[] Elect highly qualified, independent directors to the Board
[] Fill the two newly created directorships with Roche's nominees
[] Elect highly qualified, independent directors to the Board
[] Increase the Board by two directors, allowing a majority of
the
[] Amend bylaws to increase the number of directors on the
Board of Directors directors on the upsized Board to stand for election at the
2012
annual meeting
[] Amend bylaws to require newly created directorships be filled [] Ensure that Illumina shareholders determine who fills the
only by a stockholder vote vacancies created by their approval of the expansion of the
Board
[] Repeal any bylaw amendments adopted by Illumina's Board of [] Ensure the current Illumina Board does not preemptively
Directors without stockholder approval after April 22, 2010 disenfranchise shareholders
34
|
 |
Independent, Qualified Director Nominees These independent nominees are exceptionally qualified to serve in the best interest of Illumina shareholders. Nominees for Existing Board Seats (1) Bary Bailey -- Age 53 -- President of 4B Management LLC -- Operating Partner at Cressey and Company -- Former CFO of AMN Healthcare Services -- Former CFO of Valeant Pharmaceuticals Dwight Crane, Ph.D. -- Age 74 -- Professor Emeritus at Harvard Business School -- Lead Director of Legg Mason Partners Equity Funds -- Consultant to financial institutions Jay Hunt -- Age 72 -- President and co-Founder of The Development Group -- Director of DD iCorp and BMC Select -- Former member of the Advisory Board of Joie De Vivre Hospitality -- Former Director of Gentiae Clinical Research -- Former Chairman of the Ischemia Research and Education Foundation Michael Griffith -- Age 53 -- CEO and Director of Laureate Biopharmaceutical Services, Inc. -- Founder and former CEO of Aptuit, Inc. -- Former commercial and investment banker Nominees for Newly Created Board Seats (2) Earl (Duke) Collier, Jr. -- Age 64 -- Former Executive Chairman of Arsenal Medical -- Former CEO of 480 Biomedical -- Former EVP at Genzyme Corporation -- Former interim CEO at deCode Genetics -- Former President of Vitas Healthcare -- Former partner at Hogan and Hartson (now Hogan Lovells) David Dodd -- Age 62 -- Co-founder of VaxyGen Holdings, LLC -- CEO of RiversEdge BioVentures, LLC -- Director of GeoVax Labs -- Former President, CEO and Chairman of BioReliance Corporation -- Former non-executive Chairman of Stem Cell Sciences Corporation -- Former President, CEO and Director of Serologicals Corporation -- Former President and CEO of Solvay Pharmaceuticals, Inc. (1) Nominated to fill the seats of the incumbent directors, whose terms expire at the 2012 Annual Meeting. (2) Nominated to fill the newly created directorships on Illumina's Board that would result from voting for Roche's proposals. 35 |
 |
Independent, Qualified Director Nominees These independent nominees will serve in the best interest of Illumina shareholders and are not beholden to Roche. [] Roche's independent nominees are distinguished executives and academics with substantial prior board experience and pristine reputations [] If elected to Illumina's board, they will exercise their independent judgment in complete accordance with their fiduciary duty to Illumina's shareholders [] They will carefully determine what is in the best interest of Illumina and its shareholders, whether that be a sale to Roche, a sale to another party, proceeding as a standalone business or any other potential alternatives [] The nominees are not being asked to make a decision now, nor to give any commitment to Roche, with respect to Roche's offer for Illumina -- Roche has not given them any information with respect to its strategy, nor has it asked them to pass any judgment on its offer price 36 |
 |
Executive Summary Offer Summary Illumina Growth Perspectives Illumina Share Price Perspectives Offer Price Rationale Next Steps Conclusion 37 |
 |
Roche's Offer Represents Value Certainty Amidst Significant Headwinds [] $51.00 all-cash offer provides attractive value today for Illumina shareholders -- Roche to hold all risk related to increasing competitive pressures and tightening fiscal policy related to government funding -- Removes execution risk around shift in customer and geographic focus [] Illumina has little experience in regulated areas such as diagnostics that require significant biological expertise as well as interactions with the FDA -- Not contingent on financing -- Roche stands ready, willing, and able to engage in substantive dialogue with Illumina [] Can move quickly through accelerated due diligence to reach a negotiated agreement [] Extensive team from Roche and its advisors ready to engage 38 |
 |
Appendix |
 |
Key Claims
Key Claims Made by Illumina to its Shareholders Roche's Rationale for Illumina Shareholders
[] Illumina and its industry as a whole have substantial growth [] Due to worldwide economic constraints and Illumina's sales
opportunities dependency on public research institutions, analysts have a
diminishing outlook on Illumina and the sector as a whole
[] Illumina has a promising product portfolio [] Illumina management recently issued its lowest growth guidance
ever
[] The median analyst price target pre-offer was $34
[] Under Roche, Illumina has more attractive long-term growth
potential
[] Roche is attempting to take advantage of depressed stock [] Implied 21.6x LTM EBITDA and 6.5x LTM Revenue multiples are
levels highly attractive relative to comparable precedent transactions
[] Implied 34.2x 2012E earnings and 2.06x 2012E P/E/G multiples
are highly attractive relative to comparable company trading
multiples
- Implied 2.06x 2012E P/E/G represents a 16% premium to the
3-year high
[] Illumina management has a proven track record [] Illumina missed quarterly earnings twice in 2011
[] In the face of a declining market price, Illumina's lack of
share or
warrant repurchase activity calls into question Illumina's
belief
that its Q4 stock price is a "temporary dislocation"
[] Roche's offer conditions create uncertainty [] Roche's offer provides attractive value and certainty for
Illumina
shareholders
[] Highly qualified independent director nominees to act in best
interests of Illumina shareholders
[] Many of the conditions are within the control of the Illumina
Board
to satisfy
Source: FactSet, Capital IQ, I/B/E/S consensus, Bloomberg.
Note: LTM as of 12/31/2011.
40
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Summary Evaluation of Offer Price [] Higher cash value relative to Illumina's unaffected share price, particularly in a period of market uncertainty -- Implies 1-day, 1-week and 1-month average premiums of 88%, 90% and 84%, respectively (1) -- Since 2006, similar life sciences tools industry transactions have seen average premiums between 30% and 40% over similar periods (2) [] Above transaction premiums paid in precedent unsolicited transactions -- Comparable transaction set includes median premiums to the unaffected stock price prior to announcement of 54%, 51% and 49% for 1-day, 1-week and 1-month, respectively (3) [] Implies a valuation multiple of 34.2x 2012E net income, which is higher than the company's publicly traded peers (4) -- Core comparable set exhibits median multiples of 16.4x 2012E net income (5) -- Offer implies a P/E/G ratio of 2.06x, which is higher than all of Illumina's peers [] Implies 1-day and 1-month average premiums of 88% and 84%, respectively, and LTM revenue and EBITDA multiples of 6.5x and 21.6x, respectively, which are above precedent life science tools transactions (1)(2)(6) -- The precedent transactions have median 1-day and 1-month average premiums to the unaffected stock price of 33% and 37%, respectively and LTM revenue and EBITDA multiples of 3.3x and 16.0x, respectively [] Exceeds median Wall Street research analyst price target of $34.00 as of January 23, 2012 Source: FactSet, Capital IQ, I/B/E/S consensus, Bloomberg. (1) Premiums based on unaffected closing share price of $27.17 on 12/21/2011, the day prior to market rumors about a potential acquisition of Illumina by Roche. (2) Includes selected announced, closed and effective transactions with targets in the biotechnology research equipment manufacturers and biological products and life sciences tools and services manufacturers sectors since 2006. (3) Includes unsolicited transactions in all sectors over $1 billion with U.S. targets since 2000. (4) Based on I/B/E/S consensus. (5) Includes Thermo Fisher, Becton, Dickinson, Agilent, Life Technologies, Sigma-Aldrich, Waters, Mettler-Toledo, Qiagen, PerkinElmer, Bio-Rad Laboratories, Bruker and Techne. (6) LTM as of 12/31/2011. 41 |
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ADDITIONAL INFORMATION AND WHERE TO FIND IT THESE MATERIALS ARE FOR INFORMATIONAL PURPOSES ONLY AND DO NOT CONSTITUTE AN OFFER TO PURCHASE OR A SOLICITATION OF AN OFFER TO SELL ILLUMINA COMMON STOCK. THE TENDER OFFER IS BEING MADE PURSUANT TO A TENDER OFFER STATEMENT ON SCHEDULE TO (INCLUDING THE OFFER TO PURCHASE, LETTER OF TRANSMITTAL AND OTHER RELATED TENDER OFFER MATERIALS) FILED BY ROCHE WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) ON JANUARY 27, 2012. THESE MATERIALS, AS THEY MAY BE AMENDED FROM TIME TO TIME, CONTAIN IMPORTANT INFORMATION, INCLUDING THE TERMS AND CONDITIONS OF THE OFFER, THAT SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE TENDER OFFER. INVESTORS AND SECURITY HOLDERS MAY OBTAIN A FREE COPY OF THESE MATERIALS AND OTHER DOCUMENTS FILED BY ROCHE WITH THE SEC AT THE WEBSITE MAINTAINED BY THE SEC AT WWW.SEC.GOV. THE OFFER TO PURCHASE AND RELATED MATERIALS MAY ALSO BE OBTAINED FOR FREE BY CONTACTING THE INFORMATION AGENT FOR THE TENDER OFFER, MACKENZIE PARTNERS, AT (212) 929-5500 OR (800) 322-2885 (TOLL-FREE). ROCHE HAS FILED A PROXY STATEMENT ON SCHEDULE 14A AND OTHER RELEVANT DOCUMENTS WITH THE SEC IN CONNECTION WITH ITS SOLICITATION OF PROXIES FOR THE 2012 ANNUAL MEETING OF ILLUMINA (THE "PROXY STATEMENT"). ROCHE HAS MAILED THE PROXY STATEMENT AND A PROXY CARD TO EACH ILLUMINA STOCKHOLDER ENTITLED TO VOTE AT THE 2012 ANNUAL MEETING. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT CAREFULLY AND IN ITS ENTIRETY AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY CONTAIN IMPORTANT INFORMATION. INVESTORS AND SECURITY HOLDERS MAY OBTAIN A FREE COPY OF THESE MATERIALS AND OTHER DOCUMENTS FILED BY ROCHE WITH THE SEC AT THE WEBSITE MAINTAINED BY THE SEC AT WWW.SEC.GOV. THE PROXY STATEMENT AND RELATED MATERIALS MAY ALSO BE OBTAINED FOR FREE BY CONTACTING THE INFORMATION AGENT FOR THE TENDER OFFER, MACKENZIE PARTNERS, AT (212) 929-5500 OR (800) 322-2885 (TOLL-FREE). ROCHE HOLDING LTD, CKH ACQUISITION CORPORATION AND THE INDIVIDUALS NOMINATED BY CKH ACQUISITION CORPORATION FOR ELECTION TO ILLUMINA'S BOARD OF DIRECTORS (THE "ROCHE NOMINEES") MAY BE DEEMED TO BE PARTICIPANTS IN THE SOLICITATION OF PROXIES FROM ILLUMINA STOCKHOLDERS FOR USE AT THE 2012 ANNUAL MEETING OF STOCKHOLDERS, OR AT ANY ADJOURNMENT OR POSTPONEMENT THEREOF. INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF ROCHE HOLDING LTD AND CKH ACQUISITION CORPORATION WHO MAY BE PARTICIPANTS IN THE SOLICITATION OF PROXIES CAN BE FOUND IN THE DEFINITIVE PROXY STATEMENT. NO ADDITIONAL COMPENSATION WILL BE PAID TO SUCH DIRECTORS AND EXECUTIVE OFFICERS FOR SUCH SERVICES. INVESTORS AND SECURITY HOLDERS CAN OBTAIN ADDITIONAL INFORMATION REGARDING THE DIRECT AND INDIRECT INTERESTS OF THE ROCHE NOMINEES AND OTHER PARTICIPANTS BY READING THE DEFINITIVE PROXY STATEMENT. 42 |
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