Over the last few weeks I have had several conversations with scientists that use Pacific Biosciences’ (PacBio) long-read gene sequencing product and/or Illumina’s short-read sequencing products as well with other industry insiders who are familiar with both companies as well as potential competitors. All of them felt that Illumina (ILMN) would benefit a lot from PacBio’s technology and that PacBio (PACB) would benefit from Illumina’s management. They also felt that it would give Illumina a strong edge in the gene sequencing market making it challenging for private companies like UK based Oxford Nanopore, China based BGI and California based 10x Genomics to compete with Illumina.
We briefly wrote the following about Illumina’s acquisition of Pacific Biosciences last December,
If the deal closes by mid-2019 as expected by the companies, then the annualized return on this deal would be 15.14%. The regulatory risk for this deal may not be as low as that of athenahealth and this is reflected in the wider spread. If Chinese regulators hold up the deal like they did with United Technologies’ acquisition of Rockwell Collins, then the annualized returns could also drop. With $1.45 billion in net cash on Illumina’s balance sheet, I don’t see any financing risk to the deal nor do I see shareholders rejecting the deal given the huge premium Illumina paid for the company.
Since then, shareholders approved the deal but the spread increased significantly primarily on anti-trust concerns as you can see from the spread history chart below.
When PacBio reported Q4 2018 results they mentioned that they “received a request for additional information and documentary material, commonly referred to as a “second request,” from the United States Federal Trade Commission (the “FTC”)” and that they expected the deal to close in mid-2019. When the company reported Q1 2019 results last month, it once again reiterated the mid-2019 deal closing timeline.