Illumina Inc. was hit with a €432 million ($476 million) fine for acquiring cancer-test provider Grail Inc. before it was vetted by the European Union, in a test of EU regulators’ ability to wield power outside the bloc.
The fine represents about 10% of Illumina’s revenue last year, which is roughly in line with what the company had already set aside in anticipation of the event. Illumina intends to appeal the fine.
Shares of Illumina were little changed in trading before US exchanges opened, reflecting the fact that Illumina had already provisioned for a fine. Before today, Illumina had dropped close to 9% this year.
“If companies merge before our clearance, they breach our rules,” EU Competition Commissioner Margrethe Vestager said Wednesday. “Illumina and Grail knowingly and deliberately did so by implementing their tie-up as we were still investigating.”
The European Commission used new antitrust powers acquired in 2021 to probe Illumina’s $7 billion acquisition of Grail. That fresh authority allows it to regulate takeovers of startups with little or no revenue, that previously slipped under the antitrust radar. The commission’s fine dwarfs the previous EU penalty for jumping the gun on a deal.
Illumina, a DNA-sequencing giant based in San Diego, vowed to challenge the decision, calling it “unlawful, inappropriate and disproportionate.”
Grail, which was fined €1,000 by the commission, was spun off from Illumina in 2016 to develop a blood test to detect 50 types of cancer in early stages. Illumina then sought to buy back the startup, closing the deal in August 2021 without awaiting regulatory approval.
The combination risks “stifling innovation and reducing choice” for early cancer detection tests, the commission said, adding that the maximum fine is intended as a deterrent.
An EU order for Illumina to actually divest Grail is expected to come later in the year, according to people familiar with the matter. The commission has laid out a roadmap for the firms to “swiftly” unwind the takeover, warning that Illumina’s moving ahead with the deal was “a very serious infringement.”
The fine was “as expected,” according to SVB Securities analysts led by Puneet Souda.
“We continue to expect Grail divestiture as the likely outcome ultimately,” Souda said in a research note. “We expect divestiture to be received positively, given the lift of a regulatory overhang and substantial margin dilution.”
‘No Jurisdiction’
Illumina is challenging the EU merger veto in the bloc’s courts. The company has said the commission had no jurisdiction over the transaction, which is between two American companies with no foreseeable impact on competition in Europe.
Illumina said that the deal’s time frame relied on statements by the commission that it wouldn’t assert jurisdiction over mergers of this type before issuing new guidelines, which it then did. Moreover, Illumina said, the companies were kept separate when the deal closed.
US antitrust authorities also told the companies to divest Grail, a decision Illumina is appealing as well.
(Updates with Illumina’s provision in second paragraph)
