Nearly two years after the deal was first announced, the acquisition by Illumina of biotech company GRAIL was blocked by the European Commission on 6 September 2022. It was a unique case of scrutiny by the European Commission in a situation where neither the Commission nor any of the Member States had jurisdiction as the merger control thresholds for review had not been reached. As GRAIL has no revenues in Europe, the deal should not have needed national or EU approval, but the Commission called in the deal following requests to do so by certain Member States. In the summer, the General Court upheld the Commission’s position and confirmed its jurisdiction to review the deal based on the “Article 22 referral procedure”. You can read more about this here in a previous article.
Vertical concerns
The Illumina/GRAIL deal has now been prohibited by the European Commission, in a rare case based on vertical concerns. GRAIL develops blood-based cancer-detection tests, and Illumina is an important supplier of input systems for genetic and genomic analysis. The Commission found that the merger, leading as it does to the vertical integration of Illumina with GRAIL – a customer of Illumina which uses NGS systems to develop cancer-detection tests – would put GRAIL’s competitors at a disadvantage compared to GRAIL, as Illumina could thereby gain control over the promising early cancer-detection testing market. “The acquisition would have enabled and incentivised Illumina to foreclose GRAIL’s rivals, who are dependent on Illumina’s technology, from access to an essential input they need to develop and market their own tests,” the Commission stated in its press release. The Commission found Illumina’s remedy offers unconvincing.
The European Illumina/GRAIL saga unfolds against the backdrop of a US win for Illumina on 2 September 2022 where an administrative judge sided with Illumina, finding that its “open offer” to continue to supply all customers with its products on a non-discriminatory basis was enough to cure the US Federal Trade Commission’s foreclosure concerns. We understand that the FTC intends to appeal the judgment, in an attempt to block the merger.
Gun jumping
Despite the Commission’s investigation into the transaction, Illumina decided to go ahead anyway and implemented the deal during the summer of 2021. The Commission considers that the implementation may be in breach of the standstill obligation during merger review procedures. On 29 October 2021, the Commission ordered interim measures to restore and maintain the conditions of effective competition and, in parallel, opened an investigation against Illumina for gun jumping. That investigation is ongoing and may result in hefty fines.
What’s next?
Now that the transaction is blocked by the Commission, Illumina is expected to be ordered to divest GRAIL. That exercise would represent particular challenges and will potentially expose Illumina to substantial losses. The unwinding of a merger after a prohibition decision would be a rarely seen move. This means that the parties as well as the Commission are dealing with many “firsts” in this transaction.
The Illumina/GRAIL transaction covers a vast range of hot topics for dealmakers and their lawyers. Referral procedures create uncertainty about the reportability of deals and the competent bodies that can review them. Vertical transactions, traditionally regarded as less problematic, are coming under increased scrutiny, and the Commission’s teeth and tools appear to be sharp.
Want to know more about how these developments could impact your business? The Eubelius Competition Team would be happy to talk with you.
