Illumina Receives Record EU Fine for Grail Deal

European Union regulators have imposed a record €432 million ($476 million) fine on Illumina for completing its acquisition of cancer test developer Grail without obtaining regulatory approval. This fine represents 10% of San Diego-based Illumina’s turnover, the maximum allowed under EU merger rules.

The fine levied on Illumina surpasses the previous largest merger regulation fine of $125 million, or 1% of annual turnover, imposed on Altice, a telecommunications company, in 2018.

Illumina had already set aside $453 million to cover a potential maximum fine of 10% of turnover, as stated in a regulatory filing earlier this year.

This acquisition has significantly impacted Illumina’s financials, with the company’s market value dropping from around $75 billion in August 2021 to roughly $29 billion. However, Illumina asserts that the transaction will “maximize value for shareholders” and save lives.

The European Commission stated that Illumina consciously weighed the risk of a gun-jumping fine against the risk of a high break-up fee if the takeover was unsuccessful. Gun-jumping refers to the completion of a merger before receiving regulatory clearance.

According to the commission, Illumina also considered the potential profits it could gain from jumping the gun, even if it had to divest Grail at a later stage. The commission determined that Illumina intentionally proceeded with closing the deal while it was under investigation by the Commission.

The European Commission considers this infringement as very serious and warrants a proportionate fine to deter such conduct. In addition to the fine on Illumina, the commission issued a symbolic fine of around $1,100 to Grail, making it the first time the commission has fined the target of an acquisition.

An Illumina spokesperson has announced the company’s intention to appeal the fine, stating that the European Commission’s decision is “unlawful, inappropriate, and disproportionate.”

Last July, the European Commission accused Illumina of committing a “serious breach” of EU merger regulations and warned of potential hefty fines related to the Grail acquisition.

Two months later, the commission blocked the deal citing concerns over its potential negative impact on innovation and consumer choice within the emerging market for cancer detection tests.

Illumina has appealed the European Commission’s decision, arguing that the agency lacks jurisdiction to block the merger between the two US companies.

An expected decision on the appeal is anticipated in late 2023 or early 2024, which coincides with the expected decision on Illumina’s appeal of a similar order by the US Federal Trade Commission.

If Illumina loses either appeal, the company has stated its intention to divest Grail.

Illumina believes it can increase the availability, affordability, and profitability of Grail’s Galleri test, which can screen for over 50 types of cancers through a single blood draw.

Republican lawmakers, a dozen state attorneys general, and various advocacy groups support Illumina’s position, arguing that the merger could facilitate widespread access to life-saving technology.

Illumina’s determination to retain Grail led to a contentious proxy battle with activist investor Carl Icahn, who owns a 1.4% stake in the company.

Icahn’s opposition arose primarily from Illumina’s decision to close the acquisition without obtaining antitrust regulators’ approval in the EU and the US.

In May, Illumina shareholders voted to remove former board chair John Thompson and install one of Icahn’s nominees. Shortly after, CEO Francis deSouza unexpectedly resigned despite surviving the proxy vote.

Currently, Illumina is in search of a new CEO while implementing cost-cutting measures to bolster the company’s declining operating margins.