clarification on shareholders rights in decision to protect against hostile takeover


I would like to have a clarification over this case: Does this mean that if anybody buys shares today, they will be able to buy at a preferential rate later on given this decision by the board?

Illumina's board of directors has adopted a poison pill provision in response to Roche's $5.7 billion hostile takeover bid, the company announced today.

Under a rights agreement, one preferred stock purchase right will be distributed as a dividend for each share of Illumina's common stock for shareholders of record as of the close of business on Feb. 6. Essentially, the agreement states that if any person or group, such as Roche, becomes the holder of 15 percent or more of Illumina's stock, then shareholders — excluding those owning 15 percent or more of the stock — would have the right to purchase additional shares at a favorable price.

Those who buy additional shares under the agreement would have the right to purchase them at the then-current exercise price, but the shares would have a market value of twice that exercise price. In other words, the shareholder would be able to buy a share of Illumina at half the market price.

In addition, the agreement stipulates that if any person or group becomes the owner of 15 percent or more of Illumina's stock, and if Illumina merges with another firm, shareholders of Illumina as of the end of business on Feb. 6, will have the right to purchase at the then-current exercise price, the acquiring company's stock, which would have a value at twice the value of that exercise price.

Owners of 15 percent or more of Illumina would be excluded from this right, as well.

In a statement, Illumina said the rights agreement was created to "deter coercive and otherwise unfair takeover tactics" and was adopted in response to Roche's bid for the company.

“Consistent with its fiduciary duties, 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 [Illumina], including the proposal announced by Roche, and to provide stockholders with adequate time to properly assess any such proposal or offer without undue pressure while also safeguarding their opportunity to realize the long-term value of their investment in the company,” Illumina CEO Jay Flatley said in a statement.

As part of its bid, Roche said that it will nominate "a slate of highly qualified candidates" for Illumina's board during the company's next shareholder meeting, which is not yet scheduled. Today's agreement is an effort to stave off Roche's move, Quintin Lai, an analyst at RW Baird, said in a research note. He added that adoption of the poison pill provision could encourage both firms to further negotiate with each other instead of engaging in a public fight through Illumina's shareholders.

Amanda Murphy of William Blair said that the response from Illumina's board suggests that it views Roche's offer of $44.50 per share as a low-ball bid that seeks to take advantage of current market uncertainties, such as potential cuts to funding to the National Institutes of Health. Illumina's revenue stream is heavily dependent on the academic and government end market.

She added that Roche will likely need to upgrade its offer price. "[A]n offer for the company in the $60s seems more reasonable," Murphy said in a research note.

In early Thursday trade on the Nasdaq, shares of Illumina were down 2 percent at $53.79.


asked Jan 27 '12 at 20:33
68 points
  • "Full-text access for registered users only." – Ross 12 years ago
  • Ross, am guessing that is the whole article quoted there. – Ryan 12 years ago
  • @Ross, I now quoted the whole article. – 6152142613526 12 years ago

1 Answer


You should read or Only the shareholders of record as of a particular day (normally T+3 from Ex Date which could be T+3 or T+4 from the issue date) will be eligible to exercise the Poison Pill Rights issued by the company.

Normally what will happen in the case like this the company that is taking over will either raise the bid to get directors on board in which case the $60s would be the target or they will raise the bid to the level just above the currently stable one so they can get shares from other shareholders in the market.

It's also not uncommon to abandon the bid altogether. Judging by the chart if Roche actually wants the company the bid will go to about $60.

answered Jan 28 '12 at 01:40
1,779 points
  • "...shareholders of Illumina as of the end of business on Feb. 6, will have the right to purchase..." so if one buys before Feb. 6, then you have the right to participate in the "flip-in"? – 6152142613526 12 years ago
  • @avilella You're not taking into account 3-day settlement time. T+3 should be EOB Feb 6. That means that you should have bought the shares by EOB Feb 1. Otherwise you are not a shareholder of record. – Karlson 12 years ago
  • so End Of Business day Feb 6 t+3 means one still has until beginning of Feb to buy shares. – 6152142613526 12 years ago
  • @avilella Yes but you are buying them at over $50 instead of below $44 – Karlson 12 years ago

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