ZURICH U.S. gene sequencing company Illumina (ILMN.O) on Thursday unveiled a "poison pill" defense strategy against a hostile bid from Swiss drugmaker Roche (ROG.VX), saying it would trigger a rights agreement if any party bought 15 percent of its stock.
Basel-based Roche is offering $5.7 billion in cash for Illumina but the Californian group is resisting the unsolicited approach.
A deal would give Roche's diagnostics unit the edge in the fast-growing area of gene sequencing, which is central to medicine's future as it allows researchers and physicians to better predict how patients are likely to respond to a drug.
Roche may be facing a drawn-out battle after Illumina announced a rights plan, which typically allows a shareholder other than the bidder to buy more shares at a discount, often with the aim of forcing a higher offer or deterring a bid because of the higher cost of acquiring the extra shares.
"The Illumina Board has taken this action to ensure that our stockholders receive fair treatment and protection in connection with any proposal or offer to acquire the company, including the proposal announced by Roche," Illumina Chief Executive Jay Flatley said in a statement.
The Swiss drugmaker plans to formally launch a tender offer for Illumina by early next week at $44.50 per share, or $5.7 billion, according to a source familiar with the matter. U.S.-based Illumina would have 10 days to respond.
Roche Chief Executive Severin Schwan said the company had no intention of raising its offer for San Diego-based Illumina and that it wanted to nominate its own directors to Illumina's board. Roche says it holds a small number of Illumina shares.
Illumina investors have signaled their confidence Roche may raise its bid, pushing shares up some 45 percent on Wednesday.
The company also has some protection against a proxy battle with its staggered board of directors, which means Roche faces a high hurdle to replace any more than four directors this year.
Roche has taken a similar tack in previous acquisitions only to come back with higher bids, such as the purchase of Ventana Medical Systems and the buyout of Genentech.
With Schwan as its diagnostics chief, Roche in 2008 overcame months-long resistance from test maker Ventana to snap it up for $3.4 billion. It had made an unsolicited, low-end bid, before increasing its original offer by 19 percent.
At 1257 GMT, Roche stock was trading near flat, in line with the European healthcare index .SXDP.
Roche declined to comment.
(Reporting by Katie Reid in Zurich and Shailesh Kuber in Bangalore; Editing by David Cowell)