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Illumina to Acquire Grail for $8B in Cash and Stock

NEW YORK – Illumina and Grail said on Monday morning that they have entered into a definitive acquisition agreement under which Illumina will purchase Grail for $8 billion in cash and stock. In addition, Grail shareholders will receive future payments tied to certain Grail-related revenues.

The deal, which was approved by the boards of directors of both companies and follows speculation about a pending acquisition last week that caused Illumina's stock to tumble, is expected to close in the second half of next year, pending customary closing conditions and regulatory approvals. It comes on the heels of Grail's plans for an initial public offering of its stock earlier this month.

Following the acquisition, Grail, which was spun off by Illumina in 2016 and has raised approximately $2 billion to date, will operate as a standalone division within Illumina and will retain its own leadership team.

Grail plans to launch a multi-cancer blood-based screening test, called Galleri, next year that relies on targeted methylation sequencing.

"Galleri is among the most promising new tools in the fight against cancer, and we are thrilled to welcome Grail back to Illumina to help transform cancer care using genomics and our NGS platform," said Francis deSouza, Illumina’s president and CEO, in a statement. "Together, we have an important opportunity to introduce routine and broadly available blood-based screening that enables early cancer detection when treatment can be more effective and less costly."

"Combining forces with Illumina enables broader and faster adoption of Grail's innovative, multi-cancer early detection blood test, enhancing patient access and expanding global reach," said Grail CEO Hans Bishop in a statement. "We are excited about this next step in our journey to transform cancer detection and outcomes and create value for patients and their families and communities, healthcare providers and payors, employers, and stockholders."

In a conference call Monday morning to discuss the acquisition with investors, deSouza, Bishop, and other company executives explained the market opportunity that Grail represents and Illumina's rationale for buying back the firm in more detail.

Under the terms of the agreement, Grail stockholders – one of which is Illumina, already holding 14.5 percent of Grail's outstanding shares and 12 percent of the firm on a fully-diluted basis – will receive $8 billion in total, consisting of $3.5 billion cash and $4.5 billion shares of Illumina common stock.

Grail stockholders excluding Illumina will receive about $4 billion worth of Illumina shares if the 20-trading-day volume weighted average price of Illumina's stock as of 10 trading days before the closing is between $295 and $399 per share. The will receive approximately 9.9 million Illumina shares if the price is above $399, and about 13.4 million Illumina shares if it is below $295. Following the closing of the transaction, current Illumina stockholders are expected to own approximately 93 percent of the combined company, while Grail stockholders will own about 7 percent.

Illumina plans to fund the cash consideration to Grail stockholders of about $3.1 billion using balance sheet cash from both companies and $1 billion in capital it will raise either through issuing debt or equity. Illumina has already obtained financing commitments for a $1 billion bridge facility from Goldman Sachs Bank USA.

Grail stockholders will also annual receive payments representing a portion of certain Grail-related revenues for 12 years. Specifically, they well get paid 2.5 percent off the first $1 billion of Grail revenue and 9 percent off revenues above $1 billion each year. In lieu of these contingent value rights, Illumina will offer Grail stockholders the option to receive additional cash or stock consideration.

Goldman Sachs is serving as exclusive financial advisor and Cravath, Swaine, and Moore as legal advisor to Illumina. Morgan Stanley is serving as exclusive financial advisor and Latham & Watkins as legal advisor to Grail.

In morning trading on the Nasdaq, Illumina's stock was down 4.5 percent at $282.14.