2012-10-02 16:24:03 -

By David Moskowitz

Major Drug and Diagnostics company, Roche Holdings (OTC:RHBBY) appears to be
coming back to the table to take another run at acquiring Illumina
(NASDAQ:ILMN), according to a report from the London Times. Recall that Roche
initially offered $44.50 per share for ILMN then raised its bid to $51.00 before
the parties walked away from the table in April, after Illumina, a leader in
high-end gene sequencing, rejected Roche's offer. Since then, analysts have
speculated that because Roche is looking for a gene sequencing business, Life
Technologies (NASDAQ:LIFE) may be Roche's next target. In addition, hedge fund
Paulson & Co. recently disclosed a large position in LIFE, fueling speculation
that LIFE could be sold to Roche. As a result, today's news from the London
Times could remove the take-out   premium in LIFE.

The issue is that ILMN fits particularly well with Roche, and fills a gap that
Roche is looking for in the research-based gene sequencing market. ILMN is a
leader in that market with the largest installed base of sequencing equipment
and a steady flow of revenue from reagents (disposable chemicals used in the
sequencing process) sold to users of ILMN machines. LIFE's current platform
(called 'SOLiD') is viewed to be inferior to ILMN's and has not gained the same
level of traction with research institutions. LIFE hopes to gain that traction
with its new sequencing technology (the 'Ion' line), but ILMN's large following
and the ability to continue leveraging the installed infrastructure may make
LIFE's efforts more difficult. Should Roche actively pursue ILMN, as the news
implies, this confirms the thesis that LIFE may have more trouble expanding its
share of the market. Roche has a history of "signaling" acquisitions, so the
news today is likely more of a planned leak, hence our expectation that ILMN
will get the new, higher bid. Expect ILMN to continue to trade toward the $60
level, with LIFE giving up some recent gains as take out speculation for that
name should cool.

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