August 14, 2023

SEC investigating aspects of Illumina-Grail merger

In its Form 10-Q filed with the US Securities and Exchange Commission on August 10, 2023, Illumina, Inc., disclosed that it had received an inquiry letter from the SEC during the previous month.  According to the report, the SEC is conducting an investigation into Illumina’s acquisition of GRAIL, certain statements and disclosures relating to GRAIL’s products, and the conduct and compensation of some members of the management of both companies.  Illumina indicated that it is cooperating with the SEC staff in its investigation.

Illumina, a Delaware corporation headquartered in San Diego, California, develops and sells products and services connected with genetic analysis.  Illumina acquired GRAIL, a San Francisco-based company that has developed tests for the early detection of several types of cancer, in August 2021.  In March 2021, prior to completion of the acquisition, the US Federal Trade Commission challenged the transaction under the Clayton Act.  An administrative law judge rejected the challenge, and Illumina proceeded with the merger.  The FTC appealed the decision to the full FTC in September 2022.  On March 31, 2023, the FTC ordered Illumina to divest GRAIL, and to maintain separation between the two companies during the process of divestiture.  Litigation over the acquisition continues, with oral arguments scheduled for September 2023 in Illumina’s appeal of the FTC action.

Meanwhile, in Europe, France, joined by Belgium, Greece, Iceland, the Netherlands and Norway, asked the European Commission to review the Illumina/GRAIL transaction in April 2021.  Following the expiration of several interim orders, in September 2022, the European Commission informed Illumina of its decision to prohibit the acquisition of GRAIL.  The decision was based on an interpretation of Article 22 of the European Union Merger Regulation (“EUMR”) allowing EU member states to challenge mergers that fall below national merger control thresholds.  This was followed, in December 2022, by a Statement of Objections and order requiring Illumina to divest GRAIL pending a final decision by the European Court of Justice on the threshold merger question.  Illumina and GRAIL nevertheless proceeded with the transaction, and on July 12, 2023, the European Commission imposed a € 432 million fine on Illumina for intentionally flaunting the EU merger control system.  And for the first time, the European Commission imposed a fine on the target company in a merger transaction.   Illumina has indicated its intention to appeal the European Commission’s penalty and finding that its conduct breached the EUMR.

Form 10-Q