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European Union regulators on Wednesday fined Illumina a record 432 million euros ($476 million) for closing its acquisition of cancer test developer Grail without first securing regulatory approval.
The European Commission’s fine amounts to 10% of San Diego-based Illumina’s turnover, the maximum allowed under E.U. merger rules.
The Illumina fine exceeds the commission’s previous largest merger regulation fine of $125 million, or 1% of annual turnover, imposed on telecommunications company Altice in 2018.
Illumina has already put aside $453 million to cover a potential maximum fine of 10% of turnover, according to a regulatory filing from earlier this year.
And the deal has already cost Illumina great sums of money. The company’s market value has fallen to roughly $29 billion from around $75 billion in August 2021, the month it closed its acquisition of Grail.
But Illumina maintains that the transaction would “maximize value for shareholders” and save lives.
The commission said in a release 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.” Gun-jumping refers to the act of completing a merger before it receives regulatory clearance.
Illumina also “considered the potential profits it could obtain by jumping the gun, even if it were ultimately forced to divest Grail,” the commission said. “It then intentionally decided to proceed and to close the deal while the Commission was still investigating the transaction that was ultimately prohibited.”
“This is a very serious infringement, which requires the imposition of a proportionate fine, with the aim of deterring such conduct,” the European Commission continued.
The commission added that Grail “played an active role in the infringement.” It issued Grail, which is based in Menlo Park, California, a separate “symbolic fine” of around $1,100. It is the first time the commission has imposed a fine on the target of an acquisition.
An Illumina spokesperson on Wednesday said the DNA sequencing company would appeal the fine. The spokesperson said the European Commission’s decision, while expected, is “unlawful, inappropriate and disproportionate.”
Executive Vice President of the European Commission for A Europe Fit for the Digital Age Margrethe Vestager is talking to media in the Berlaymont, the EU Commission headquarter on September 6, 2022 in Brussels, Belgium.
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The European Commission last July alleged that closing the Grail acquisition was a “serious breach” of E.U. merger regulation that could lead to “hefty fines.”
Two months later, the commission blocked the deal over concerns it would stifle innovation and consumer choice in the emerging market for cancer detection tests.
Illumina has appealed the European Commission’s decision, arguing that the agency lacks jurisdiction to block the merger between the two U.S. companies.
Illumina expects a final decision on an appeal in late 2023 or early 2024. That’s also when the company expects a decision on its appeal of a similar order by the U.S. Federal Trade Commission.
Still, the company has said it will divest Grail if it loses either appeal.
Illumina believes it can expand the availability, affordability and profitability of Grail’s Galleri test, which can screen for more than 50 types of cancers through a single blood draw.
U.S. Republican lawmakers, a dozen state attorneys general and several advocacy groups have similarly argued that the merger could promote the widespread availability of the life-saving technology. Those parties sided with Illumina in the company’s ongoing legal battle with the FTC last month.
Illumina’s determination to keep Grail sparked a heated proxy showdown with activist investor Carl Icahn, who holds a 1.4% stake in the company.
Much of Icahn’s opposition stemmed from Illumina’s decision to close the acquisition without gaining approval from antitrust regulators in the E.U. and U.S.
Illumina shareholders voted to oust former board chair John Thompson in May and install one of Icahn’s nominees.
Weeks later, CEO Francis deSouza abruptly stepped down from his post despite surviving the proxy vote.
Now, Illumina is searching for its new CEO while implementing a cost-cutting plan designed to shore up the company’s shrinking operating margins.