On the 12th of October 2023, the European Commission (the “Commission“) made an official declaration, wherein it unveiled that a set of restorative measures mandating Illumina, a prominent global genomics corporation headquartered in the United States, specialising in the development, production, and commercialisation of next-generation sequencing systems, has been adopted to unwind its completed acquisition of GRAIL and to reinstate, by this way, the circumstances as they existed before the concentration was put into effect. This acquisition pertains to GRAIL, a healthcare company developing blood-based cancer tests based on genomic sequencing and data science tools, also based in the United States. Within the decision dated 12th of October 2023 (the “Decision“)1, the Commission ordered the reversal of the transaction concerning the acquisition of GRAIL and adopted the divestment measures and transitional measures in this respect.
Background of the Decision
A chronological account of significant developments related to the transaction is provided below, along with concise explanations underscoring the importance of these events in contextualising the Decision:
On 20th of September 2020, Illumina entered into an approximately USD 8 billion deal to acquire GRAIL.
Despite the high transactional value, the transaction did not meet the mandatory notification thresholds of the European Commission due to the turnovers of the parties, and the transaction was not subject to mandatory notifications in Member States.
On 19th of April 2021, the Commission accepted the referral request for a review of the proposed acquisition.
Pursuant to Article 22 of the EU Merger Regulation2, France, then followed by 5 other Member States (namely Belgium, Greece, Iceland, the Netherlands, and Norway), made a referral request for the review of the proposed acquisition of GRAIL. This mentioned article constitutes the ground for the review of any concentration that does not have an EU dimension but affects trade within the single market and threatens to significantly affect competition within the territory of the requesting Member States.
On 16th of June 2021, the proposed transaction has been notified to the Commission.
The Commission published the notification of the proposed transaction on its Official Journal on 25th June 2021 and invited the interested third parties to submit their possible observations.3
On 22nd of July 2021, the Commission initiated an in-depth investigation over concerns arising from the proposed transaction.
This is the first instance where the Commission has investigated a transaction that does not meet notification thresholds at both the EU and Member State levels.
On 18th of August 2021, Illumina announced that the parties closed the deal, while the examination of the Commission was still ongoing.
Illumina and GRAIL finalised all requisite documentation to consummate the transaction. In addition, GRAIL underwent a merger process with two wholly-owned subsidiaries of Illumina, and Illumina also remunerated GRAIL’s shareholders for their shares.
On 20th August 2021, the Commission opened an investigation to assess whether Illumina breached the ‘standstill obligation’.
Standstill obligation is a requirement that merging companies do not implement transactions unless and until they have been notified and cleared by the Commission with the aim of the prevention of the potentially negative impact of transactions on the market.
On 20th of September 2021, the Commission sent a Statement of Objections to Illumina and GRAIL informing them of the interim measures.
The interim measures were designed to prevent the potentially irreparable detrimental impact of the transaction on competition as well as possible irreversible integration of Illumina and GRAIL during the pendency of the Commission’s review.
On 29th of October 2021, the interim measures have been adopted by the Commission for the duration of 12 months.
As a first of its kind, the Commission imposed interim measures in a merger procedure following an early implementation of a concentration, with the object of restoring and maintaining effective competition while preventing irreversible asset integration.4
On 19th of July 2022, the Commission sent a Statement of Objections to Illumina and GRAIL.5
Based on the findings on a preliminary basis that Illumina and GRAIL breached the EU Merger Regulation by early implementation the transaction prior to the conclusion of in-depth investigation.
On 06th of September 2022, the Commission decided to prohibit the acquisition.
Illumina proposed remedies with the aim to address the Commission’s competition concerns therefore the Commission analysed the remedies and found that the remedies were not sufficient to address the competition concerns. Based on this analysis, the acquisition has been prohibited over concerns that the merger would have stifled innovation and reduced choice within the emerging market for blood-based early cancer detection tests.
On 28th of October 2022, the Commission renewed the interim measures which was adopted on 29th of October 2021.
The Commission renewed and adjusted the existing interim measures for preparing for a potential order to unwind the transaction.
On 5th of December 2022, the Commission adopted a Statement of Objections outlining the restorative measures it intended to adopt.
The Statement of Objections was delineating the intended restorative measures, encompassing (i) the divestment measures that the Commission considers Illumina must implement to unwind the transaction with GRAIL and (ii) the transitional measures that necessitate compliance from both Illumina and GRAIL until Illumina has dissolved the transaction.
On 12th of July 2023, the Commission adopted the gun-jumping decision, imposing fines on both Illumina and GRAIL.
The Commission imposed a fine within the statutory limit of 10% of Illumina’s turnover, i.e. approximately €432 million for intentionally breaching the standstill obligation. This fine represented the highest amount fine ever imposed on an undertaking for gun-jumping (failure to comply with the notification obligation and standstill obligation, in other words, failure to notify a transaction or implementing a transaction before obtaining the clearance). On the other hand, GRAIL received a symbolic fine of €1000, for being fully aware of the standstill obligation and yet having played an active role in the breach, marking the first instance of a target company being fined for such a breach.6
On 12th of October 2023, the Commission adopted the Decision concerning restorative measures, the specifics of which are outlined hereinbelow.
Details of the Decision
The Decision orders that Illumina must divest itself of GRAIL, effectively reverting the situation to the state prior to the completion of the acquisition. Consequently, these restorative measures encompass two key elements: (i) divestment measures requiring Illumina to unwind the transaction with GRAIL and (ii) transitional measures requiring compliance from both Illumina and GRAIL until the date Illumina will dissolve the transaction.
The prominence of that decision arises from the fact that this is the first time the Commission ordered the reversal of a closed transaction.
Regarding the divestment measures, the intent is to reinstate GRAIL’s independence from Illumina to the same level it possessed before the acquisition. Post-divestment, GRAIL must maintain its viability and competitiveness at a level on par with its pre-acquisition state. Moreover, these divestment actions should be executed within stringent timeframes and with a high degree of certainty, ensuring the expeditious restoration of the pre-transaction scenario. In light of this, Illumina is obligated to submit a concrete divestment plan for the disposal of GRAIL, which requires the Commission’s approval.
In the context of transitional measures, it is imperative to ensure the continued separation of Illumina and GRAIL until the transaction is fully unwound. This separation is intended to prevent any further integration of GRAIL into Illumina’s operations and to forestall any irreparable harm to competition. Notably, Illumina is obliged to sustain GRAIL’s financial viability by ongoing funding to meet GRAIL’s cash requirements. This financial support enables GRAIL to continue its development and launch of the early cancer detection test, Galleri. These measures are designed to replace the interim measures that were currently in force at the date of the Decision.
It is worth noting that non-compliance with the restorative measures set forth by the Commission may result in periodic penalty payments of up to 5% of the average daily aggregate turnover, as well as fines potentially reaching up to 10% of the annual worldwide turnover for the companies involved.
In conclusion, the series of events leading to the European Commission’s decision in the case of Illumina’s acquisition of GRAIL represents a significant milestone in the realm of international business and antitrust regulation. The Commission’s decision to unwind a closed transaction is unprecedented and underscores its commitment to preserving competition in emerging markets, such as blood-based early cancer detection tests. The stringent restorative measures outlined in the Decision demonstrate the Commission’s resolve to maintain market integrity, ensuring that GRAIL returns to a state of independence and competitiveness. The potential penalties for non-compliance further emphasise the Commission’s dedication to enforcing these measures. This case serves as a notable benchmark in the field of merger scrutiny and showcases the Commission’s evolving approach in the ever-evolving landscape of global business acquisitions.