EU Commission fines Illumina & GRAIL for Implementing Acquisition Without Prior Merger Control Approval
The European Union (EU) Commission has fined the U.S. biotech giant Illumina and GRAIL, a cancer-screening company approximately Euro 432 million and Euro 1,000 respectively, for implementing their proposed merger before approval by the Commission, in breach of EU merger control rules.
Illumina announced an $7.1 billion acquisition of GRAIL in 2020, but the European Commission, the EU’s executive arm and top antitrust enforcer, said the company broke EU merger rules by completing the deal without its consent. The 27-nation bloc announced last year that it was blocking the acquisition, saying it would hurt competitors.
EU merger rules require that merging companies not to implement mergers until approved by the Commission (the standstill obligation). According to the EU Merger Regulation (‘EUMR') there is an obligation on companies to notify the Commission of concentrations that have an EU dimension prior to their implementation is laid out in Article 4(1) of the EUMR.
The standstill obligation, which is set out in Article 7(1) of the EUMR, establishes that concentrations with an EU dimension may not be implemented prior to notification to or clearance by the Commission. It is a cornerstone of the European merger control system, that enables the Commission to carry-out its role before structural changes modify the competitive landscape.
In July 2021, the Commission opened an in-depth investigation into Illumina's acquisition of GRAIL. In September 2022, the Commission blocked the transaction over concerns that it would have significant anticompetitive effects, stifling innovation and reducing choice in the emerging market for blood-based early cancer detection tests.
In August 2021, however, while the Commission's review was still ongoing, Illumina publicly announced that it had completed its acquisition of GRAIL. On this date, the parties executed all documents needed to complete the transaction. Moreover, GRAIL merged with two wholly-owned subsidiaries of Illumina.
The latter also paid GRAIL's shareholders for their shares. In July 2022, the Commission sent Illumina and GRAIL a Statement of Objections finding on a preliminary basis that they breached the EU Merger Regulation by implementing their tie-up prior to the conclusion of the Commission's in-depth investigation.
Therefore, the Commission in its preliminary view confirmed that Illumina and GRAIL intentionally breached the standstill obligation. The Commission found that by closing the transaction Illumina was able to exercise a decisive influence over GRAIL and it actually exercised it. The Commission held this to be an unprecedented and very serious infringement undermining the effective functioning of the EU merger control system.
According to the EUMR, the Commission can impose fines of up to 10 per cent of the aggregated turnover of companies, which intentionally or negligently breach the standstill obligation. In setting the amount of the fines, the Commission determines the gravity of the infringement as well as the existence of mitigating or aggravating circumstances.
In particular, the Commission found that:
(a) Illumina strategically weighed up the risk of a gun-jumping fine against the risk of having to pay a high break-up fee if it failed to takeover GRAIL. It also considered the potential profits it could obtain by jumping the gun, even if it were ultimately forced to divest GRAIL. The company then intentionally decided to proceed and to close the deal while the Commission was still investigating the transaction that was ultimately prohibited. The Commission deemed this to be a very serious infringement, which required the imposition of a proportionate fine, with the aim of deterring such conduct.
(b) GRAIL was fully aware of the standstill obligation and yet played an active role in the infringement. The Commission noted that GRAIL had taken legal steps to enable the completion of the transaction, while it knew the Commission's in-depth review was ongoing.
While calculating the fine on Illumina, the Commission considered Illumina’s deliberate strategy, and took due account of the hold separate measures adopted by the company as a mitigating circumstance. The Commission subject to a statutory limit of 10 per cent of Illumina's turnover, i.e., approximately Euro 432 million, ultimately imposed this amount as a fine.
However, the Commission decided to impose only a symbolic fine of Euro 1,000 on GRAIL as this was the first time it imposed a fine for gun-jumping on a target company.