In Judging Hostile Bids, Look at How Recent Targets Fared Just say no. That 1980s mantra may sound appealing to companies that have received hostile takeover bids if they stopped to consider the fate of some other targets that recently spurned unwanted suitors. Shares of Airgas are trading at about $91 a share, well above the $70-a-share, "best and final" offer that its pursuer, Air Products & Chemicals, a rival in the specialty gas industry, made in December 2010. The Potash Corporation of Saskatchewan has traded as much as 70 percent above the August 2010 offer from the mining giant BHP Billiton. And the Iowa-based convenience store operator Casey's General Stores, which successfully fought off a $38.50-a-share hostile offer by Alimentation Couche-Tard in 2010, is now trading at about $57 a share. All this is backdrop to a rare opportunity that shareholders of Illumina have to push their board into a deal - or not. On Wednesday, the shareholders will vote on whether to replace Illumina's board with nominees proposed by Roche Holdings of Switzerland, which has made a $51-a-share ($6.2 billion) offer for Illumina, a gene sequencing company. A win for Roche is likely to mean a quick sale of Illumina. Illumina's board has spurned Roche's offer, contending that the Swiss drug giant is taking advantage of a low in its stock. Illumina was trading at a valuation last year of well above $8 billion, compared with Roche's current offer. Roche argues that if Illumina is really worth that much, Illumina would have bought back more of its stock last year when Illumina's share price was trading below $30 a share. Illumina has responded by talking up the gene sequencing market, making itself look like the next Apple poised to capitalize on a new industry. And while Illumina would really like to speak to Roche, it just can't at this valuation. By recommending against accepting the Roche offer, the influential proxy advisory service Institutional Shareholders Services agrees. I.S.S. says that traditional valuation techniques are "inadequate for a company whose real potential - the vast end markets, in and beyond health care, which are beginning to turn to its technology - is all before it." Yet there is a big risk in turning down an offer that according to Roche represents an 88 percent premium to where Illumina's shares were trading at the time rumors of an acquisition leaked. Indeed, some companies appear to have made foolish decisions in declining hostile offers. Yahoo's former chief executive, Carol Bartz, has called Yahoo's decision to spurn Microsoft's $31-a-share bid in 2008 "stupid." Yahoo is now trading at about $15 a share. Electronic Arts offered $26 a share to acquire Take-Two Interactive, also in 2008. Take-Two adopted a "don't touch me" defensive strategy to fight off EA, and is now trading at about $14.50 a share. What makes the difference in whether a company is right to turn down an offer? In all of the examples cited above, the decision to say no was really just the board's and not shareholders. Companies that have prospered by spurning offers and remaining independent usually have a strong, informed board that is willing to stand up to both its chief executive and a hostile raider. This was particularly true in the case of Airgas. Even as its shareholders appeared to support a sale to Air Products, the board resisted. Airgas's chief executive and co-founder remained committed to staying independent unless a knockout price was paid, and his board backed him up. The directors made the right move in the face of advocates who argued that a poison pill should be eliminated to allow shareholders to choose. Count me among those who turned out to be wrong in that instance. But with Yahoo and Take-Two, weak boards were subject to the control of individuals who didn't seem to want to sell at any price. In the case of Take-Two, Strauss Zelnick appeared to rule the company, and the company adopted an aggressive golden parachute plan benefiting him apparently to fend off Electronic Arts. Similarly in Yahoo's case, Yahoo's co-founder, Jerry Yang, appeared to want to fight off Microsoft at all costs. The result was that the decision became more about staying independent than achieving full value for shareholders. For its part, Illumina is not adopting a scorched-earth strategy. Instead, Illumina is arguing that its shareholders need to focus on the value of the company that cannot be quantified. Compare Illumina's strategy with the target's defense in another pending hostile bid, Prestige Brands" efforts to fend off an $834 million hostile bid from the Mexican drug maker Genomma Lab Internacional. Prestige's board has adopted a poison pill, but it expires at the company's next annual shareholder meeting unless approved by shareholders. The board has also said it is open to considering "compelling" proposals that would "maximize value" for shareholders. Prestige's defense is to gently convince shareholders that it is a strong board and looking for value. Both deals show that the value of a "just say no" defense is limited these days. Instead, boards need to put forth a value proposition even when they have the deciding word. To prove value, companies have to show shareholders that they are willing to consider bids and not reflexively say no. By doing this, directors of target companies are trying to show that they are taking their jobs seriously. The result is better information in the market and better decision-making. In Illumina's case, this defense appears likely to win the company a victory at Wednesday's meeting, though Roche is experienced at this game, having succeeded in hostile takeovers of Ventana and Genentech. Because of this, even if Roche loses at Illumina's shareholder meeting, I would not be surprised if a deal is still reached at some point. Illumina is likely to face substantial shareholder pressure to speak to Roche if the price is raised. Saying no will always carry risk for shareholders and boards. There will also always be boards that make the wrong decision and decide to deflect a hostile offer out of an undue preference to stay independent. And while boards will largely maintain the final say on hostile offers, the market appears to be pushing even the bad boards to give more credence to shareholders by more thoroughly assessing bids. In these cases, information and deliberation appear to be the best medicine for uncertainty and telling good boards from bad.