The European Commission today announced it has ordered Illumina (Nasdaq: ILMN) — the DNA sequencing and array-based tech developer — to unwind and divest its Grail acquisition.
The decision follows the commission’s decision to prohibit the transaction in September 2022 over concerns the merger would be anticompetitive and “stifle” innovation in the market.
Despite the disapproval of the EU Commission, Illumina and Grail “unlawfully completed the merger during the commission’s in-depth investigation,” the EU said in a news release. The move was against EU merger control rules, and the commission issued significant fines to Illumina and Grail in July as a result of the proposed merger.
“Today’s decision restores competition in the development of early cancer detection tests. These tests could represent a breakthrough in our fight against cancer. By ordering Illumina to restore Grail’s independence, we ensure a level playing field in this crucial market to the ultimate benefit of European consumers,” Commissioner Didier Reynders, in charge of competition policy, said in the news release.
The EU’s orders
With the EU’s decision today, the commission adopted restorative measures requiring Illumina to divest Grail and “restore the situation prevailing before the completion of the acquisition,” according to the statement.
The EU Commission ordered Illumina to complete divestment measures that require Illumina to divest and transitional measures that both companies need to comply with until Illumina has dissolved the transaction.
The divestment measures must be implemented in line with the following principles:
- The dissolution of the transaction must restore Grail’s independence from Illumina to the level Grail was at before the acquisition.
- Grail must be as viable and competitive after the divestment as it was before the acquisition to ensure there will be an innovation race between Grail and rivals, similar to before the transaction.
- The divestment must be executed within strict deadlines with sufficient certainty so that the pre-transaction situation can be restored in a timely manner.
Illumina has the option to choose the appropriate divestment methods, as long as it follows the divestment measure principles. However, the company has to submit a divestment plan that has to be approved by the European Commission.
If the companies do not comply with the restorative measures, the commission can impose periodic penalty payments of up to 5% of the average daily aggregate turnover of the company under Article 15 EUMR. Additionally, Article 14 of EUMR allows the commission to fine companies that fail to comply with up to 10% of their annual worldwide turnover.
Illumina’s woes since announcing the Grail acquisition
Illumina announced in September 2020 that it would acquire Grail for cash and stock consideration of $8 billion. Since then, the company has faced a whirlwind of investigations on two continents with the EU Commission and the U.S. Federal Trade Commission (FTC) having antitrust concerns over the merger.
The company delayed the Grail acquisition in April 2021 amid an FTC challenge that alleged the proposed acquisition would diminish innovation for multi-cancer early detection tests. Weeks later, the European Commission announced that it was going to review Illumina’s proposed acquisition as well.
A U.S. judge in June 2021 ruled in favor of an FTC petition to drop the case against the proposed merger. The ruling allowed the European Commission to investigate the merger while the deal remained blocked.
Illumina completed the $8 billion Grail acquisition in August 2021 despite scrutiny from both regulating agencies. However, Grail was set to remain separate from Illumina until all reviews were complete.
By September 2022, Illumina cleared the antitrust hurdle in the U.S. but was blocked by the European Commission again, which prohibited the company from acquiring Grail.
As a result of the way they handled the merger, Illumina and Grail were hit with heavy fines in the EU in July of this year. Illumina was fined $478.9 million (€432 million) and Grail $1,108 (€1,000). The commission claimed the companies implemented their proposed merger before approval by the Commission. Such actions breach European Union merger control rules.
One month later, the company announced the U.S. Securities and Exchange Commission (SEC) had opened an investigation into the Grail acquisition.