Uncertainty over Pacbio-Illumina Deal May Spill over to Oxford Nanopore

Uncertainty over Pacbio-Illumina Deal May Spill over to Oxford Nanopore

A couple of warnings before we begin - (i) this article is for entertainment purpose only and no part of it should be considered an investment advice, (ii) we have no financial position in the mentioned companies.

The stock market tells us that the Pacbio-Illumina deal may be in trouble. Starting around May 20th, the stock price of Pacbio took a mysterious southward turn. This was not supposed to happen, because Pacbio stock was almost like money in the bank based on Illumina’s Nov 2018 decision to acquire the company for $1.2B. We discussed the implications of the merger in a November blog post.

The reasons for the “mysterious drop” came out a month later, when UK’s regulators announced that the merge could hurt competition. The insiders likely anticipated about the coming decision in mid-May and started selling Pacbio stocks early. Therefore, the continuing fall of Pacbio stock price suggests that the insiders do not have good news yet.

In an ironic twist, UK regulators’ effort to help “competition” (UK’s crown jewel Oxford Nanopore is one) may end up hurting Oxford Nanopore in the near future. How so? Let me explain.

Our regular readers are aware that Neil Woodford owns a large part of Oxford Nanopore. How is Woodford doing lately? Not so good at it turns out.

In the past, Woodford had been known for his investment acumen. More recently, however, he got known for the lack of it. Woodford’s party is not fun any more, and his small and large investors are eager to leave. To stop them from leaving, Woodford decided to close the gates of his popular fund.

To allow the investors to leave again, Woodford needs to sell his illiquid holdings like Oxford Nanopore, Benevolent AI and other. Unfortunately (for him), the market is running out of bigger fools. We learned yesterday that his lofty valuation for Benevolent AI was not accepted by others. Check - “Benevolent AI’s reported down round spells trouble for Woodford” for details.

That brings us to the largest white elephant in Woodford’s stable, namely Oxford Nanopore. Based on last year’s news reports, this company has a valuation of over a billion quids. That valuation may not stand in today’s climate, when the buyers do their own due diligence. Establishing the valuation of companies follow very similar process as real estate. To find the best estimate for the price of your house, you check how much a similar house in your neighborhood sold for. In case of sequencing companies, the valuation is established based on the comparison with similar sequencing companies. The best comparison for Oxford Nanopore would be Pacbio, whose stock price is sinking thanks to British regulators.

Written by M. //