NEW YORK – The European Commission on Wednesday fined Illumina €432 million ($479 million) for acquiring liquid biopsy firm Grail prior to approval by competition regulators.
"If companies merge before our clearance, they breach our rules," Margrethe Vestager, EC executive VP in charge of competition policy, said in a statement. "Illumina and Grail knowingly and deliberately did so by implementing their tie-up as we were still investigating. Today's decision to fine both companies, for a total amount of €432 million, shows that this is a very serious infringement."
The EC also fined Grail €1,000, a symbolic amount as this is the first time the EC is imposing a fine on a company that was the target of a prematurely closed acquisition.
The Illumina fine represents 10 percent of its 2022 revenues — which were $4.58 billion — the maximum amount a company can be fined under the EU Merger Regulation. But the EC suggested that it wanted to punish Illumina even more.
The seriousness of the infringement "requires the imposition of a proportionate fine, with the aim of deterring such conduct," the EC said in a statement. It weighed Illumina's apparently deliberate strategy of gun-jumping against the mitigating "hold separate" measures adopted by the companies. "The Commission is however subject to a statutory limit of 10 percent of Illumina's turnover … and thus ultimately imposed this amount as a fine," the EC said.
Illumina had been expecting the fine and recorded a $453 million loss in the third quarter of 2022 to cover it. That was after the EC notified Illumina that its preliminary findings alleged a breach of the "standstill obligation" of mergers, while the EC was completing its in-depth review of the proposed deal. In December, the EC issued its objections to the deal and said it plans to require Illumina to divest Grail.
Though the firm has been expecting the decision, it believes the fine is "unlawful, inappropriate, and disproportionate," and plans to appeal, Illumina Global Head of Public Relations David McAlpine said in a statement.
"To respect the EC's process, we voluntarily held the companies separate upon closing and have abided by the EC's interim measures while the regulatory and judicial processes conclude," he said, noting that the firm's challenge to the EC's jurisdiction to review the deal is pending.
Success in that appeal "could render these fines irrelevant," Evercore ISI analyst Vijay Kumar wrote in a note to investors. "Irrespective of these legal entanglements, we would expect Illumina to divest Grail at the earliest feasible opportunity … we are tired of writing about the Grail saga and hope the board of directors additions/new CEO are signaling a close to this rather ugly chapter in the Illumina story."
For its part, Grail was "fully aware of the standstill obligation and yet played an active role in the infringement," the EC said. "For example, Grail took legal steps to enable the completion of the transaction, while it knew the Commission's in-depth review was ongoing."
In Wednesday morning trading on the Nasdaq, shares of Illumina were up 3 percent at $190.91.