Illumina fined record €432m for completing Grail merger before EC approval

Commission says dealmakers ‘knowingly and intentionally’ breached standstill obligation | Grail receives the first-ever fine for a target company under EU merger rules.

Illumina and Grail have been given an unprecedented fine of approximately €432 million ($438 million) and €1,000 respectively for breaching EU merger control rules.

The two companies were found to have implemented a proposed merger before gaining approval from the European Commission.

An Illumina spokesperson told LSIPR the fine was "unlawful, inappropriate and disproportionate" and the company would be appealing.

The Commission initiated an in-depth investigation into Illumina's acquisition of Grail in July 2021.

In September 2022, the Commission blocked the $7.1 billion transaction due to concerns about its anticompetitive effects. They feared it could hinder innovation and limit choices in the growing market for blood-based early cancer detection tests.

However, while the Commission's review was still going on in August 2021, Illumina publicly announced that it had completed the acquisition of Grail.

Illumina also paid Grail's shareholders for their shares.

In July 2022, the Commission issued a statement of objections to Illumina and Grail, stating that they had violated the EU Merger Regulation by completing the merger before the Commission concluded its investigation.

The Commission sent another statement of objections to Illumina and GRAIL, informing them of the restorative measures it intends to take, on December 5, 2022.

These measures would force Illumina to undo the acquisition of GRAIL to fully enforce the Commission's prohibited decision. A final decision on the unwinding of the deal is currently pending.

In its decision, which includes the first fine for a target company for merging before approval, the Commission made it clear that “Illumina and Grail intentionally breached the standstill obligation”.

Illumina had “gained decisive influence over Grail” by completing the transaction and had exercised that influence, said the Commission.

Illumina: Commission 'promised not to act' on deal

A spokesperson for Illumina defended the company's actions, saying that the Commission had promised to take no action on the deal as it fell outside the start of new merger rules.

"We closed the transaction in 2021 because there was no impediment to closing in the US and the deal timeframe would have expired before the EC could reach a decision on the merits. The deal timeframe relied on the EC’s public statements that it would not assert jurisdiction over mergers of this type until new guidelines were issued, yet the EC nonetheless asserted jurisdiction over the merger before issuing the promised guidelines.

"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. Illumina’s challenge of the EC’s jurisdiction to review the GRAIL transaction is pending before the European Court of Justice.

"Success in that appeal would eliminate the basis for any fine and enable Illumina to expand the availability, affordability and profitability of the groundbreaking Galleri test in the $44-plus billion multi-cancer screening market."

The standstill obligation

EU regulation (article 4(1) of the EUMR) requires companies wanting to merge to notify the Commission of the merger.

The standstill obligation, (established in article 7(1) of the EUMR) prohibits the implementation of mergers before notification or clearance by the Commission.

It allows the Commission to conduct reviews of deals and prevent any changes that could impact the market and competitive landscape, the EC said.

The Commission considers any breach of the standstill obligation to be “very serious” as it “undermines the effective functioning of the EU merger control system”.

In line with EU Merger Regulation, the Commission can impose fines of up to 10% of the total turnover of companies that intentionally or negligently violate the standstill obligation.

‘Unprecedented and severe infringement’

The Commission outlined that “Illumina and Grail knowingly and intentionally breached the standstill obligation”.

This constituted an “unprecedented and severe infringement that undermines the effective functioning of the EU merger control system”, the Commission continued.

The Commission found Illimina had weighed the risks of a “gun-jumping fine” against the potential high break-up fee if the takeover failed. Illumina also considered the potential profits it could obtain by completing the merger early, even if it ultimately had to divest Grail.

The Commission's authority to impose fines for breaches is outlined in article 14(2)(a) and (b) of the EUMR.

Illumina’s €432 million fine was issued taking into account the company’s “deliberate strategy and the mitigating factor of the hold separate measures it implemented”, but was still limited to 10% of Illumina’s turnover.

In terms of the fine of €1,000 issued to Grail, they were considered the “target company” and were “fully aware of the standstill obligation but actively participated in the infringement”.

The investigation found that Grail “took legal steps to facilitate the completion of the transaction while being aware of the ongoing in-depth review by the Commission”.

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