Illumina GrailThe European Commission announced today that it issued significant fines to Illumina (Nasdaq:ILMN) and Grail as a result of their proposed merger.

European authorities fined Illumina approximately $478.9 million (€432 million) and Grail $1,108 (€1,000). They claim the companies implemented their proposed merger before approval by the Commission. Such actions breach European Union merger control rules.

The rules require merging companies to wait until the Commission approves the deal before implementing it. European officials opened an investigation into Illumina’s acquisition of Grail in 2021 before blocking the transaction in 2022. They reasoned that the deal may have significant anticompetitive effects in the blood-based early cancer detection market.

In August 2021, amid the Commission’s review, Illumina publicly announced the completion of the $7.1 billion acquisition. The companies executed all necessary documents and Grail merged with two wholly-owned subsidiaries of Illumina.

According to a news release, the European Commission confirmed its preliminary view that the companies intentionally breached the standstill obligation. The Commission found that, by closing the transaction, Illumina exercised a decisive influence over Grail.

Margrethe Vestager, EVP in charge of competition policy for the European Commission, issued the following statement:

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

The history behind Illumina’s attempt to acquire Grail

Illumina’s acquisition of Grail, a cancer detection technology developer, has seen its fair share of scrutiny. In September 2020, Illumina announced an agreement to acquire Grail. Grail itself was a startup that initially spun out from the company in 2016.

Illumina completed the acquisition in August 2021, as the European Commission outlined. It agreed to hold Grail as a separate company as the European Commission conducted a regulatory review. Illumina argued Grail has no business in Europe. The company said the review is out of the European Commission’s jurisdiction.

In September, the European Commission issued its ruling, prohibiting the planned acquisition.

That roadblock came shortly after the FTC Chief Administrative Law Judge’s (ALJ) decision favored Illumina in a decision. An administrative law judge in the U.S. rejected the Federal Trade Commission’s argument that the $8 billion acquisition of Grail is anti-competitive.

Reports surfaced in January of this year saying Illumina may face this heavy penalty in Europe for completing the acquisition. Reuters reported that Illumina most likely faces a fine totaling 10% of its global annual turnover — the maximum penalty available. The European Commission confirmed that its fine of Illumina totaled the maximum 10% penalty. CNBC reports that the company plans to appeal this fine.

Its fine of Grail represented a “symbolic” move as the Commission claims the company played an active role in the infringement. This marks the first time the Commission imposed a fine for gun-jumping on a target company, hence the small fine.

What next?

On top of the ongoing battle to put the Grail acquisition out from under legal scrutiny, Illumina has faced a series of challenges in recent months.

Last month, the company announced that CEO Francis deSouza resigned from his post. That came more than a week after Hologic CEO Stephen MacMillan became non-executive board chair. Edwards Lifesciences CFO Scott Ullem filled a second new seat, bringing the board seat total to 12.

These changes to the board came through after activist investor Carl Icahn’s candidate knocked the previous board chair John Thompson out of his position. deSouza still managed to survive his own Icahn-supported challenge.

Illumina’s search for a permanent CEO remains ongoing, though. On top of that, the company is implementing cost-cutting measures that date back to November 2022 when it eliminated 5% of its workforce. Illumina also has an ongoing appeal with the FTC’s order to divest Grail in order to protect competition to develop better cancer tests.