PacBio Shares Reflect Some Ongoing Worries About The Illumina Deal

Although Illumina (ILMN) reiterated during its first-quarter conference call that it expects its acquisition of Pacific Biosciences (PACB) (“PacBio”) to close around midyear, clearly the market is not wholly sold on that outcome, with the shares trading below $7 as of this writing. While we know that the FTC had a second round of questions for the company on the deal (disclosed by Illumina in conjunction with Q4’18 earnings) and the end of the U.K.’s Competition and Markets Authority Phase I review is coming up, neither PacBio nor Illumina has expressed any real concern that the deal won’t go through, and due diligence has continued to support the idea that the two companies really aren’t competitive in any meaningful sense.

I still believe the deal goes through, but it is arguably prudent to address what happens if the deal doesn’t happen. Assuming that PacBio would be entitled to a full breakup fee, I believe PacBio’s cash would be just barely sufficient, though the launch of the Sequel II and SMRT Cell 8M chip complicates discussions of cash burn. Given that I believe PacBio would be worth around $6.50 on a standalone basis, it’s hard for me to reconcile today’s price with the likely Illumina buyout and even the worst-case scenario of the deal collapsing.

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PacBio Shares Reflect Some Ongoing Worries About The Illumina Deal