Illumina receives record €432M fine from EU for false start on Grail deal

Just because it budgeted for it for a year doesn’t mean it has to like it.

Illumina said it will appeal a 432 million euro fine levied by the European Commission for jumping the regulatory gun two years ago, when the DNA sequencing giant closed its multibillion-dollar acquisition of multicancer blood test maker Grail without waiting for official approval—describing the punishment as “unlawful, inappropriate and disproportionate.”

The amount can also be described as a new record. For what the EU called an “unprecedented and very serious infringement” by Illumina and Grail, its penalty weighs in at far above its previous high: a 125 million euro fine delivered to a Dutch telecommunications company in 2018 for a similar flaunting of the EU’s merger rules.

“We closed the transaction in 2021 because there was no impediment to closing in the US and the deal timeframe would have expired before the EC could reach a decision on the merits,” Illumina said in a statement. “The deal timeframe relied on the EC’s public statements that it would not assert jurisdiction over mergers of this type until new guidelines were issued, yet the EC nonetheless asserted jurisdiction over the merger before issuing the promised guidelines.”

Illumina has filed a challenge regarding the jurisdiction of the European Court of Justice to review the Grail transaction, and this matter is currently awaiting a resolution. "Success in that appeal would eliminate the basis for any fine and enable Illumina to expand the availability, affordability and profitability of the groundbreaking Galleri test in the $44-plus billion multi-cancer screening market,” the company added.

Illumina had set aside $453 million in the second quarter of 2022 for what it dubbed “legal contingencies” in preparation for potentially hefty EU fines, which by law can reach up to 10% of a company’s annual turnover. 

And while a 432 million euro fine—what the commission described as the maximum allowed—would have shaken out to about $445 million at that time, changes in exchange rates over the past year means today’s tab totals about $476 million.

“If companies merge before our clearance, they breach our rules,” the commission’s executive vice president for competition policy, Margrethe Vestager, said in a statement. 

“Illumina and Grail knowingly and deliberately did so by implementing their tie-up as we were still investigating,” Vestager said. “Today’s decision to fine both companies, for a total amount of €432 million, shows that this is a very serious infringement.”

The commission levied what it called a “symbolic fine” against Grail—a paltry 1,000 euros—as it is “the first time it imposes a fine for gun-jumping” on the target company of a deal.

“Grail was fully aware of the standstill obligation and yet played an active role in the infringement,” the commission said in its announcement. “For example, Grail took legal steps to enable the completion of the transaction, while it knew the commission's in-depth review was ongoing.”

Meanwhile, “Illumina strategically weighed up the risk of a gun-jumping fine against the risk of having to pay a high break-up fee if it failed to takeover Grail,” it added. “It also considered the potential profits it could obtain by jumping the gun, even if it were ultimately forced to divest Grail.”

The company then chose to move forward and finalize the transaction despite an ongoing investigation by the commission. "This is a very serious infringement, which requires the imposition of a proportionate fine, with the aim of deterring such conduct” the commission said in its announcement. 

The EU fine is the latest domino to fall in the aftermath of Illumina’s quest for Grail. On the U.S. side of the pond, the companies have also attracted the ire of the Federal Trade Commission, with its order to fully divest Grail currently being appealed in court. 

And earlier this year, the consequences of the acquisition—plus the long-running decline in Illumina’s share price, with the company’s market cap sliding to $29 billion, down from a high of nearly $80 billion in August 2021 before it closed the Grail deal—all set the stage for a shareholder revolt led by billionaire activist investor Carl Icahn.

Icahn, with his 1.4% stake in the company, had put forward a slate of three nominees he wanted to see join Illumina’s board—replacing its CEO, board chairman and the head of its governance committee, not so respectively—and tasked them with rolling back the Grail deal.

Shareholders ultimately elected one of the three—Andrew Teno, a portfolio manager at Icahn Enterprises—to take the seat of board chair John Thompson. CEO Francis deSouza, who had led the company since 2016, resigned shortly thereafter. Illumina’s general counsel, Charles Dadswell, will serve as interim chief until a permanent leader is chosen.