Illumina was hit with a record EU fine for the Grail deal

European Union regulators on Wednesday fined Illumina a record 432 million euros ($476 million) for shutting down cancer diagnostic developer Grail without obtaining regulatory approval.

The European Commission’s fine is 10% of San Diego-based Illumina’s revenue, the maximum allowed under EU merger rules.

The Illumina fine is 1% more than the $125 million maximum merger rule the commission imposed on telecommunications company Altice in 2018.

According to a regulatory filing earlier this year, Illumina set aside $453 million to cover 10% of the maximum fine.

The deal cost Illumina a lot of money. In the year In August 2021, the month it closed its acquisition of Grail, the company’s market value fell from about $75 billion to $29 billion.

Illumina, however, expects the transaction to be “highly valuable to shareholders” and save lives.

The commission said in the release that Illumina “strategically weighed the risk of a gun-jumping penalty against the risk of paying a higher break-up fee if it fails to take control of Grail.” Jumping the gun refers to the act of completing a merger before obtaining regulatory approval.

“Even if Illumina was ultimately forced to destroy Grail, it would have considered the potential gain from jumping the gun,” the commission said. “The Commission then decided to proceed deliberately and close the deal while it was investigating the prohibited transaction.”

The European Commission continued: “This is a very serious violation, which requires the imposition of an appropriate penalty, with the aim of deterring such behavior.”

The commission added that Grail “played an active role in the infringement.” Grail in Menlo Park, Calif., issued a separate “symbolic penalty” of about $1,100. It is the first time the commission has imposed a penalty on a buyout target.

An Illumina spokeswoman said on Wednesday that the DNA sequencing company will appeal the sentence. A spokesman said the European Commission’s decision was “unlawful, unfair and disproportionate”.

Last July, the European Commission charged that blocking the Grail acquisition was a “serious breach” of EU integration law and could result in “significant fines”.

Two months later, the Commission blocked the deal over concerns that it would stifle innovation and consumer choice in the market for cancer tests.

Illumina appealed the European Commission’s decision, arguing that the agency did not have the authority to block the merger between the two US companies.

Illumina expects a final decision on the appeal in late 2023 or early 2024. That is while the company awaits a decision on an appeal of the same order by the US Federal Trade Commission.

Still, the company says it will ditch Grail if it loses any appeal.

Illumina believes it will expand the reach, affordability and profitability of Grail’s Galleri test, which diagnoses more than 50 types of cancer with a single blood draw.

Republican U.S. lawmakers, a dozen state attorneys general and several advocacy groups have similarly argued that the merger would allow wider access to life-saving technology. Those parties sided with Illumina in the company’s legal battle with the FTC last month.

Illumina’s determination to keep Grail has sparked a heated proxy fight with activist Carl Icahn, who owns a 1.4% stake in the company.

Much of Icahn’s opposition has stemmed from Illumina’s decision to close the acquisition without obtaining approval from antitrust regulators in the EU and the US.

Illumina shareholders voted in May to oust former board chairman John Thompson and install one of Icahn’s nominees.

Weeks later, CEO Francis DeSouza survived a proxy vote but abruptly resigned.

Now, Illumina is looking for a new CEO as it implements a cost-cutting plan designed to reduce the company’s operating margins.