The way to win a poker is to be unpredictable; remind me not to play if Roche executives are sitting at the table.
When Roche initially made a play for Illumina
Now Roche said it's walking away from the deal after the company failed to win any seats on Illumina's board. Roche doesn't plan to extend its tender offer for $51 per share that's set to expire tomorrow.
Is that it? Game over? I doubt it. As I see it, Roche is still sitting at the table with cards in its hands. Roche's problem from the beginning has been that Illumina wouldn't sit down and play the negotiation game. Threatening to walk away looks like a move to try to engage Illumina.
I doubt it'll work -- at least not yet. Illumina has support of its shareholders; preliminary results indicate that only 6% of shares voted for Roche's slate. Management can sit back and wait for Roche to increase its offer to a nice starting place for negotiations.
The risk, of course, is that Roche isn't bluffing. That it really plans to look elsewhere for sequencing technology or just invest in other areas of its business. Turning down a last-and-final offer can be costly; Yahoo! trades well below the $31-per-share bid from Microsoft in 2008. Same situation for Take-Two Interactive Software after it spurned a bid from Electronic Arts.
What Illumina really needs is another bidder to shake things up. But I just don't see that happening. Abbott Labs
I like Illumina better here at the knocked-down price than I did with it trading well above Roche's offer price, but it's still a risky bet now that Roche has gone off script. Illumina could drop further if it becomes clear that Roche really isn't interested; going out and buying Pacific Biosciences of California
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Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Yahoo!, Abbott Laboratories, and Microsoft. Motley Fool newsletter services have recommended buying shares of Pacific Biosciences of California, Microsoft, Illumina, Take-Two Interactive Software, Thermo Fisher Scientific, and Yahoo! and creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.