Fate of Illumina’s Grail Acquisition Remains Very Much in Doubt

These are tense times for Illumina. Last August, facing a contractually required $300 million termination fee, the DNA sequencing giant decided to gamble and complete its $8 billion acquisition of former liquid biopsy spinoff Grail without regulatory approval from the European Commission (EC) Directorate-General. We’ll deal with the EC later and hold Grail at arm’s length as a wholly-owned, independently operating subsidiary just in case, Illumina figured. However, it’s beginning to look like Illumina’s roll of the dice is going to come up snake eyes.

EC Turns Up the Heat

From the beginning, Illumina has challenged the EC’s regulatory authority over an acquisition that it contends is purely a US transaction. However, the European General Court recently affirmed the EC’s jurisdiction to review the deal under European Union (EU) mergers and acquisitions (M&A) laws. And, on July 19, the EC fired a salvo of its own by sending Illumina and Grail a Statement of Objections accusing the firms of violating the “standstill obligation” requiring companies not to proceed with proposed M&A transactions unless and until they receive the required regulatory approval, a violation that carries a potential fine of up to 10 percent of a company’s annual revenues, which in the case of Illumina and Grail, are expected to top $5 billion this year.

“If companies jump the gun and implement deals that are subject to our review, they undermine the effective functioning of our EU merger control system,” noted Margrethe Vestager, EC executive vice president in charge of competition policy, in a statement. She characterized the companies’ decision to close their deal while the EC investigation is still taking place as “a serious breach of the standstill obligation” that could result in “hefty fines.”

Like the US Federal Trade Commission (FTC), the EC has serious concerns that acquiring Grail and its Galleri multi-cancer early detection test will give Illumina control over the majority of the international market share of sequencing machines, along with the power to stifle DNA oncology research by competitors.

In response to these concerns, Illumina has pledged to sign new standard contracts guaranteeing customers that are developing cancer diagnostics access to hardware with no price increases for at least 12 years. However, the EC and FTC have both made it abundantly clear that they still have concerns about the Grail acquisition.

The EC is expected to make a ruling on the standstill violation in September. Investigation into the legality of the underlying Grail acquisition could continue into next year. For now, all Illumina can really do is continue to hold Grail at arm’s length and hope for the best.

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Here’s a summary of the key new M&A diagnostic deals that were announced and/or closed in July 2022:

Mergers, Acquisitions, & Asset Sales