- Illumina has closed its $8 billion takeover of liquid biopsy player Grail despite an ongoing regulatory review by the European Union and a pending U.S. Federal Trade Commission administrative trial.
- With the deal set to expire before regulators reached their decisions, Illumina has taken the potential risk that it will need to unwind the takeover down the line in response to regulatory opposition. For now, Illumina is holding off on integrating Grail pending the regulatory and legal reviews.
- Evercore ISI analysts called it a "maverick move" to close the deal ahead of EU and U.S. regulatory clearances as regulators attempted to "run down the clock and use every available delaying tactic. "However, a Cowen analyst said it was a "pretty aggressive" move that risks "causing distraction and wasted efforts." While Illumina said the European Commission will likely respond by trying to impose a fine of 10% of its consolidated annual turnover, CEO Francis deSouza claimed the deal will save lives.
The question of whether Illumina has time to get regulatory and legal clearances before closing the Grail deal has hung over the company since the Commission opened its in-depth investigation into the takeover last month.
If Illumina had failed to close the takeover by Dec. 20, 2021, it would have needed to pay a $300 million termination fee and make a $300 million investment in Grail, on top of the $35 million a month it has been handing over this year.
While the Commission's 90-day investigation pointed to a late November conclusion, Illumina now expects the process to be completed early next year. A decision from an FTC administrative trial is also penciled in for the first quarter. FTC initially filed for a preliminary injunction and then withdrew the case, announcing it would await for the European Commission's outcome while retaining the right to refile.
Facing the forced termination of the takeover, Illumina has closed the deal without waiting for decisions from the Commission and FTC.
"The stakes here are high because simply put, this deal saves lives, and we feel a moral obligation to ensure that the deal has a full review. We want to provide the financial support, expertise and scale to get it widely distributed and covered by insurers," Illumina's deSouza said on a conference call with investors. "We estimate that, with Illumina acceleration, the Galleri test can conservatively save 10,000 additional lives in the U.S., and additional lives in the EU over the next 9 years."
Analysts, many of whom have been skeptical of the merits of the deal from the start, are less sure of the wisdom of Illumina's action.
On the call, Cowen's Doug Schenkel pushed deSouza to discuss the risk that Illumina is "further damaging" its relationship with the U.S. government, leading to negative effects on future strategic endeavors, and "causing distraction and wasted efforts that are ultimately not in the best interest of Illumina shareholders."
DeSouza downplayed the risk. As Illumina sees it, FTC cleared the barrier to the closing of the deal when it dismissed a federal court complaint for its preliminary injunction and temporary restraining order in May.
The CEO did not answer two direct questions about whether FTC has said Illumina can move forward with the deal.
The situation in Europe is different. By closing the takeover before the conclusion of the review, Illumina has risked a fine of 10% of its annual turnover and the prospect of needing to undo the deal. Illumina took on those risks in the belief the European Union lacks jurisdiction over the takeover as it is between two American companies and Grail has "no existing or firm plans for business in Europe."
Illumina has two shots at challenging the EU. First, Illumina could persuade the Commission to back the takeover upon the conclusion of the ongoing three-month review. If the Commission opposes the deal, attention will turn to the courts, where Illumina is awaiting a hearing date on the question of whether the EU has jurisdiction over the deal.
Illumina expects a court ruling in the first quarter but will appeal a negative decision, creating the potential for the legal battle to drag on to around 2025.
If both challenges fail, Illumina will need to unwind the deal. Management said Illumina will assess the best option for Grail if and when that happens, but noted an IPO will likely be a good candidate.