Carl Icahn takes aim at genome sequencer Illumina over Grail deal

Shares in Illumina surged more than 20 per cent on Monday following a decision by activist investor Carl Icahn to launch a proxy battle over what he described as the company’s “reckless” acquisition of cancer-screening start-up Grail.

Icahn sent a letter to Illumina shareholders alleging that its management team and the board of directors had wiped out $50bn of value at the world’s biggest genome sequencing company through the “ill-advised” purchase of Grail for $8bn in 2021.

He said his investment group would nominate three directors to Illumina’s board at the upcoming annual shareholding meeting, who he argued could bring a “badly needed dose of sanity” to Illumina’s boardroom. Icahn owns a 1.4 per cent stake worth $427mn as of last week’s close, according to a securities filing.

The proxy battle follows a tumultuous 18 months for Illumina, whose market capitalisation has slumped from $75bn in August 2021 when it acquired Grail to just over $30bn last month.

“This value destruction is a direct result of a series of ill-advised (and frankly inexplicable) actions taken by the board of directors of our company in connection with the acquisition of Grail. To paraphrase William Shakespeare’s Hamlet, something is rotten in the state of Illumina,” Icahn said in the letter to shareholders.

Illumina shares were up 18 per cent at $228 in afternoon New York trading.

Illumina has continued to defend its acquisition of Grail in the face of opposition from European and US regulators and growing concerns among the company’s shareholders and former executives.

Jay Flatley, who stepped down as chair of Illumina in May 2021, told the Financial Times in January that the deal was a “huge disappointment” and shareholders wanted Grail spun back out of the company.

The EU has ordered Illumina to divest Grail and is expected to issue a fine of up to 10 per cent of its annual revenue in the coming weeks for closing the deal without securing regulatory approval. Illumina is running Grail as a subsidiary while it battles the EU order.

Icahn said Illumina’s management and directors’ decision to “brazenly thumb their noses” at regulators by using an M&A technique known as gun-jumping was “inexplicable and unforgivable” and created “a staggering amount of risk”.

The investor alleged Illumina would now be forced to pay $800mn in annual operating costs but has no operational control of Grail and cannot realise any synergies from the acquisition.

Illumina might now have to pay a $458mn fine and up to $1.75bn in taxes if it was forced to divest Grail at the same price at which it was purchased, Icahn said. Illumina would be a forced seller in a deteriorating market of an asset it acquired at an exorbitant price, he added.

Illumina said Icahn’s letter did not recognise the real value that Grail could provide to Illumina’s shareholders, nor reflected an understanding of the regulatory process. The company would divest Grail “expeditiously” if it does not win its appeal against the EU order, it said.

Francis deSouza, Illumina chief executive, and chair John Thompson were talking to Icahn over his board nominees, the company said.

Illumina said: “Mr Icahn was explicit and unyielding in his demand that any resolution should give him outsized influence and control. 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.”

The Wall Street Journal first reported on Icahn’s letter to shareholders.