EU Fines Illumina Record $476 Million for Gun-Jumping Grail Deal

Adding yet another layer to the controversy that is Illumina’s acquisition of Grail, European Union (EU) regulators have made good on their threat to punish the company for closing the deal without waiting for EU antitrust approval. With a record fine amount put forth by the European Commission (EC), Illumina is now charged with paying $476 million (€432 million), the maximum 10% of aggregated turnover that can be imposed by the commission for companies that “intentionally or negligently breach the standstill obligation,” according to the EC’s press release announcing the fine. Illumina said it plans to appeal the commission’s decision.

How we got here

Starting with Illumina’s announcement in September 2020 agreeing to bring Grail back into the fold — Grail was initially a startup by Illumina that spun out in 2016 — roadblocks to the finish line started quickly. In April 2021, the Federal Trade Commission (FTC) filed a lawsuit to block the deal, citing that the acquisition would diminish innovation in the United States market for multi-cancer early detection tests. The company unsuccessfully appealed the ruling, with the FTC once more deciding to order Illumina to divest Grail. However, in a move not uncommon in this saga, in June 2023, the company again filed an appeal against the FTC order.

In the meantime, despite investigations by EC on the merger being far from over, Illumina gun-jumped the closing of the acquisition with Grail in mid-2021. Illumina said it made the decision because, according to the company, the EC did not have jurisdiction to review the merger as it does not conduct business in the EU. Additionally, Illumina said that if it didn’t take the steps to finish the acquisition, the company the deal terms would expire before there was a chance for a full review.

“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,” an Illumina spokesperson wrote in a statement to MD+DI. “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. To respect the EC’s process, we voluntarily held the companies separate upon closing and have abided by the EC’s interim measures while the regulatory and judicial processes conclude.”

Unsurprisingly, EC disagreed, ruling in September 2022 that it would prohibit the acquisition, which Illumina is currently in the process of appealing.

Unwrapping the fine

In was in January 2023 that the first whispers of a potential fine started, with Reuters reporting the likelihood of a fine of 10% of Illumina’s global annual turnover for acquiring Grail without proper approval. Illumina’s fine of $476 million is by far the greatest monetary amount the EC has ever ruled for pertaining to these regulations, its previous largest merger regulation fine was of $125 million, or 1% of annual turnover.

Knowing the potential for such a fine after the EC ruling, Illumina reportedly put aside $453 million last year for just this reason, a company spokesperson wrote to MD+DI, noting that the company continues litigation with the EU, including challenges to the EU’s jurisdiction to review the transaction. If Illumina were to be successful in its claims, the basis for any fine would be eliminated. The decision in that appeal, according to the company, is expected in late 2023 or early 2024.

EC cites intention to breach standstill

EC said in a release that it came to its $476 million decision based on evidence the company intentionally decided to proceed with the acquisition’s closing despite the commission actively investigating.

“Illumina and GRAIL knowingly and intentionally breached the standstill obligation during the commission's in-depth investigation,” the EC wrote. “This is an unprecedented and very serious infringement undermining the effective functioning of the EU merger control system.”

Specifically, the EC wrote that 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 also considered the potential profits it could obtain by jumping the gun, even if it were ultimately forced to divest Grail. It then intentionally decided to proceed and to close the deal while the commission was still investigating the transaction that was ultimately prohibited.”

Grail itself didn’t get off completely unscathed.

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

Due to its role in the action, the commission decided to also impose a symbolic fine of €1,000 on Grail, the first time the EC has imposed such a fine for gun-jumping on a company targeted for acquisition.

Aftershocks

For now, it seems Illumina’s gamble hasn’t paid off. Just in 2023, the company has seen layoffs and its CEO resigning following a heated proxy battle, adding even more questions to whether it will have to divest Grail even after its years-long fight to bring it home.