In the week since Carl Icahn sent an open letter to Illumina shareholders to drum up support for a proxy battle, the fight between the billionaire activist investor and sequencing giant has only continued to heat up.
Icahn’s March 13 letter estimated that Illumina’s market cap had plummeted by about $50 billion since August 2021 thanks to the board’s “ill-advised (and frankly inexplicable)” move to re-acquire former spinout Grail in an $8 billion deal.
“To paraphrase William Shakespeare’s Hamlet, something is rotten in the state of Illumina,” Icahn wrote.
He went on to condemn Illumina’s decision to plow forward in closing the acquisition in the summer of 2021 even though it was still under investigation by the European Union’s antitrust agency—and was ultimately blocked by the European Commission in September 2022.
That move could ultimately result in a fine of up to 10% of Illumina’s annual revenues, which reached $4.6 billion last year, and could also see Illumina forced to divest Grail’s business from its own—both possibilities that Illumina is currently preparing for by setting aside more than $450 million in “legal contingencies” and operating Grail as a completely separate subsidiary in the meantime. Illumina has said it plans to appeal any potential fines and is also in the process of appealing the EU’s jurisdiction over the case, arguing that Grail currently has no business in Europe.
In its initial response to Icahn’s letter last week, Illumina said the proposal “neither recognizes the real value that Grail can provide to Illumina’s shareholders nor reflects an understanding of the regulatory process.”
The company added that its nominating and corporate governance committee had met with the three people Icahn plans to nominate to join the board at its upcoming shareholder meeting: Jesse Lynn, general counsel for Icahn’s eponymous holding company; Andrew Teno, a portfolio manager at Icahn Enterprises; and Vincent Intrieri, the founder and CEO of private investment firm VDA Capital Management.
“The board has determined Icahn’s nominees lack relevant skills and experience, and that it is not in the best interests of shareholders to appoint Mr. Icahn’s three nominees to the board of Illumina,” the company said, concluding, “The board recommends that shareholders not support Mr. Icahn’s nominees.”
Icahn soon issued a rebuttal, arguing in a March 15 letter that his nominees will in fact “bring a dose of sanity to Illumina’s ‘Rip Van Winkle’ boardroom and help to clean up the Grail disaster.” He accused the current board of presiding over “one of the greatest fiascos in business history” and the loss in valuation, “while losing only miniscule amounts for themselves.”
As proof of his fellow shareholders’ support, Icahn pointed to the fact that, in the wake of news reports detailing the planned proxy fight last Monday morning, Illumina’s stock had jumped to prices not seen since November.
That follow-up letter also clarified Icahn's belief that Illumina should immediately divest Grail, citing what he believed to be a too-high purchase price to begin with, the fact that Illumina ignored regulatory holdouts to complete the purchase and the "major tax problem" that will face Illumina once it does move to separate out the subsidiary.
A week after Icahn’s first letter went live, Illumina hit back at the activist investor yet again. In a press release Monday, it claimed that it “is the only profitable, pure-play genomics tools company in existence” and reiterated its commitment to further extending that lead over competitors. The company also highlighted a restructuring plan implemented late last year as evidence of its management team’s commitment to “managing costs.”
Grail, meanwhile, “offers the only commercially available multi-cancer early detection test,” per Illumina, and is expected to approximately double its 2022 revenues this year. Illumina pointed out that Icahn himself had described Illumina as a “great company” and Grail's technology as Illumina's “best equipment” during a recent TV interview.
“Illumina is moving as quickly as possible to work through the legal and regulatory processes to maximize value for shareholders with respect to Grail, including defining the conditions and options of a potential divestiture,” the company continued, adding that while a successful appeal of the European Commission’s decision would represent the best outcome for shareholders, if it loses the appeal, “the company will follow the terms of the final divestiture order, expeditiously and in a manner that is in the best interests of its shareholders.”