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While I'm not surprised Roche increased its offer, the fact that it happened so soon and the magnitude of the increase is a little curious. Roche's first private offer was $40 per share, followed by a $44.50-per-share public offer. Now it's upped the offer all the way to $51 per share, higher than yesterday's close.
Investors smell desperation in the move. They bid up Illumina back above the new offer price, which seems reasonable. Bidding against yourself is generally a losing proposition.
I see the move as a good-faith offer to try to get Illumina to the table. Once the genetic-sequencer maker opens its books, Roche might be willing to make an even higher offer, although another 15% jump might be a little extreme. The current offer is 88% higher than before rumors of the bid became public.
The problem with buying at this level is that the rewards might be fairly minor and the risk is a big unknown. If Roche isn't willing to go much higher and/or Illumina's board isn't willing to negotiate, I could still see Roche walking away from the deal. For sure Illumina is a good fit for Roche, but there are other genetic-sequencing companies out there. Life Technologies (Nasdaq: LIFE ) , Pacific Biosciences of California (Nasdaq: PACB ) , and Complete Genomics (Nasdaq: GNOM ) could all serve as alternatives for Roche.
The only wild card current investors have is that some white knight that might come in and make a substantially higher offer for Illumina. While that's certainly possible, it seems like a long shot. The other large player in the diagnostics space, Abbott Labs (NYSE: ABT ) , is working on splitting the company in two, potentially eliminating it from getting into a bidding war.
At this point, buying shares of Illumina is more akin to gambling than investing, since you're at the whim of a couple of executives to determine the final sale price -- or whether there is a sale at all. But it'll be fun to watch the drama unfold from the sidelines, especially now that the most obvious move has already been made.