Illumina and Pacific Biosciences announced recently after the close of the market that they have "mutually agreed" to terminate their merger agreement.
The deal, announced in November 2018, would have seen Illumina acquire PacBio for $8 per share ¡ª approximately $1.2 billion in cash. Per their agreement, Illumina will pay PacBio a termination fee of $98 million; Illumina will also make continuation payments totaling $34 million over the next three months.
In a joint statement, the firms cited a "lengthy regulatory approval process" and "continued uncertainty of the ultimate outcome" in their decision, which they said "is in the best interest of their respective shareholders and employees."
"We believe this proposed combination would have broadened access to Pacific Biosciences sequencing technology, significantly expanded and accelerated innovation, and ultimately increased the clinical utility and impact of sequencing," Illumina CEO and President Francis deSouza said in a statement.
"We are disappointed that our customers and other stakeholders will not realize the powerful advantages of integrating the sequencing capabilities of our two companies," PacBio CEO Michael Hunkapiller added. "With that said, we are confident in the future of Pacific Biosciences as we continue to pursue improved sequencing accuracy and throughput that can be utilized in an ever-expanding number of applications."
The regulatory pressures that ultimately collapsed the deal came from both the UK Competition and Markets Authority (CMA) and the US Federal Trade Commission (FTC.) The first cracks showed in June 2019, when Illumina pushed back its expected close of the deal upon news that CMA was moving its investigation into a second phase. But in September 2019, the firms extended their agreement and Illumina began making monthly cash paymentsto sustain PacBio's operations.
In October, CMA released provisional findings that the deal would lessen competition in the UK next-generation sequencing market and suggested it would block the deal. Then, on Dec. 17, 2019, FTC announced it had filed an administrative complaint alleging Illumina was seeking to unlawfully maintain a monopoly in the US NGS market. The agency had authorized its staff to use legal measures to block the deal until an administrative trial, scheduled for August.
Still, Illumina told PacBio a day after the FTC announcement it was extending the merger end time to March 31, 2020. Under the extension, PacBio had been due a $6 million cash payment on or before today, Jan. 2, $22 million by Feb. 3, and another $6 million by March 2. According to a filing with the US Securities and Exchange Commission, Illumina has agreed to make those payments as continuation advances. PacBio will have to repay those funds if it undertakes a change of control transaction or an equity or debt financing greater than $100 million.
Several Wall Street analysts said the deal's collapse was not a surprise to investors and that it would have little impact on Illumina.
"We do see the termination of the merger as a setback for the potential applications of the combined technology," SVB Leerink Analyst Puneet Souda wrote in a research note, adding it was "a missed opportunity for next-gen sequencing end-markets and potential breakthrough applications that could have emerged."
The only surprise was in the timing, according to Cowen's Doug Schenkel. It was "unclear why Illumina extended the deadline (and a $34MM "liability") ~2 weeks ago, after a scathing rebuke from the FTC," he wrote.
In morning trading on the Nasdaq, shares of PacBio were up slightly and shares of Illumina were down slightly.
"I'd like to thank our employees, as well as the Pacific Biosciences team, for their unwavering dedication and commitment throughout this process," deSouza said. "Moving forward, we will continue to look for ways to increase the impact and benefit of sequencing technologies for researchers, clinicians, and most importantly, patients."
