By Jessica Hodgson and Marietta Cauchi Of DOW JONES NEWSWIRES LONDON -(Dow Jones)- Despite deciding not to extend beyond Friday a $6.5 billion offer for U.S. diagnostics firm Illumina Inc. (ILMN)--effectively withdrawing from its bid to buy the gene sequencing firm--Roche Holding A.G. (ROG.VX) may not permanently abandon its pursuit of Illumina, some hedge fund managers said Wednesday. Instead, they say, Roche could try different tactics. The Swiss pharmaceutical giant said Wednesday that it won't extend its $51 a share offer beyond Friday, after preliminary estimates indicated the re-election of the incumbent directors of Illumina rather than the election of its own slate of directors. Roche wanted to buy Illumina, based in San Diego, to expand its portfolio of personalized medicines--a new field of medicine in which pharmaceutical companies seek to tailor treatments to patients' unique genetic make-up. Illumina's board repeatedly rejected Roche's offer as too low and put in a shareholder rights plan, or "poison pill," to defend itself. "I personally believe that this battle is not over," said Amit Shabi, who co-manages the Paris-based Bernheim Dreyfus Diva Synergy fund. Shabi, whose fund has a small position in Illumina, said he sees two potential options for Roche, which made its initial $5.7 billion, or $44.50-a-share cash offer for Illumina in January. It is possible Roche is "playing hardball" and wants to bring home to the management and shareholders of Illumina that the expectation of a higher bid is largely what has been supporting Illumina's share price. In that case, said Shabi, Roche could well wait until the shares fall back, then return with a slightly higher offer. He pointed to Roche's tactics with its acquisition of Genentech, in 2009, for $46.8 billion. Roche finally acquired the San Francisco-based company for $95 a share, after having earlier dropped its offer price from the initial opening price of $89 to $86.50, going directly to shareholders. When it did finally lift the price, shareholders were primed and ready to accept its offer. Shabi cautioned, though, that it is possible Roche will retreat in full, making good on comments it has made to the market in recent weeks that there are other equally attractive corporate targets. Another hedge fund manager, speaking on condition of anonymity, said that Roche likely remains interested in Illumina and could seek to negotiate privately behind the scenes. Shareholders of Illumina have been indicating to Illumina's management in recent weeks that they are amenable to a deal at a range around about $60 a share, the hedge fund manager said. Roche's $51-a-share offer is nearly 90% higher than the price of Illumina's shares in December, before rumors of interest surfaced. But the issue that Roche faced in the battle is that a number of large institutional shareholders bought stock during a period between December 2010 and July 2011, when Illumina's shares were between $64 and $79.40. As such, there was an expectation that the process would find its own momentum and that Roche would likely raise its offer again. A third hedge fund manager speculated that Roche has likely decided to walk away on its own terms. This fund manager doesn't think that Roche's interest in Illumina has waned permanently, but says Roche will likely wait at least six months and look closely at the performance of Illumina's new product pipeline, before trying again. At 1615 GMT, Illumina shares were down 2.5% at $43. Roche shares closed up 1% at CHF162.90. - By Jessica Hodgson and Marietta Cauchi, Dow Jones Newswires; + 44 207 842 9373; jessica.hodgson@dowjones.com
