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Illumina Careens Toward Contested Board Election as Both Sides Amp up Rhetoric

This story has been updated to include comments from a March 30 letter from Carl Icahn responding to Illumina's preliminary proxy statement.

NEW YORK – Illumina is bracing for a fight over seats on its board of directors as the window for a mutually agreeable resolution with activist investor Carl Icahn appears to close.

In a document filed Thursday with the US Securities and Exchange Commission, Illumina outlined its overtures to Icahn, who is seeking to place three associates on Illumina's nine-member board in order to effect a divestment of Grail. Illumina acquired Grail in 2021 for approximately $8 billion despite objections from European regulators. Those regulators are expected to issue a divestment order soon and could fine Illumina more than $400 million for jumping the gun on the deal.

In an accompanying statement, the firm characterized Icahn as "unwilling to compromise," saying he declined to meet with two independent candidates drawn from the shortlist of potential board members that Illumina keeps on hand.

"In Icahn's words, he 'would not even support Jesus Christ' as an independent candidate over an Icahn nominee as 'my guys answer to me,'" Illumina wrote in its filing.

Illumina also said it found Icahn's nominees "wholly lacking in independence and any necessary experience, original perspective, or detail on how or what they would like to see the company do differently." In interviews, "each candidate instead recited the same poorly researched and non-actionable ideas with respect to Grail," the firm wrote.

The attacks come as Icahn is beginning to paint a target on Illumina CEO Francis deSouza.

"I wasn't focused on the CEO when I started. But now I am because I've gotten so many calls concerning all the things he did," Icahn told GenomeWeb earlier this month. And on Wednesday, Icahn told the Wall Street Journal that he thought ex-CEO Jay Flatley — who was chairman of Illumina's board at the time the Grail deal was announced but who had left before it was pushed through — should be "[brought] back … immediately."

On Thursday afternoon, Icahn responded to Illumina's proxy statement with another letter to shareholders, alleging that company officials broke an agreement to keep negotiations private. "The spirit of settlement negotiations is to keep them private in the hopes of achieving peace rather than war," he wrote. "Today, Illumina's representatives have broken their word and gone public and taken out of context certain things that were supposedly said during these discussions." Icahn also attacked deSouza's credibility and character, calling him "untrustworthy."

Illumina's preliminary proxy statement recommends that shareholders vote for the existing nine-member board and not for any of Icahn's slate of nominees. Icahn has not yet submitted a preliminary proxy statement, but there is little to suggest the parties will reach a compromise.

Illumina declined to comment beyond what was in the proxy statement. The document provides more information on the early back and forth between the company and Icahn, who acquired approximately 1.2 percent of Illumina's shares this year ahead of his campaign for board representation.

Illumina claimed that its first communication from Icahn was in a letter, dated Feb. 16, requesting a director nomination questionnaire, a prerequisite to propose nominees for the board. On Feb. 23, deSouza held a "preliminary discussion" with Icahn and later that day received the notice of nominations.

On March 2, deSouza and board Chairman John Thompson traveled to Florida to meet with Icahn and raised the prospect of mutually agreeing to add one or two directors from Illumina's shortlist. 

"The problem is that deSouza has been able to manipulate his board such that we believe all but one of his board members are handpicked by deSouza at this time," Icahn wrote in his response to the proxy statement. "So why would we want to meet more of deSouza’s handpicked nominees? So we made the comment that, even if one of his nominees was Jesus Christ, who admittedly was a great man, we would still insist on three candidates."

Allegedly, Icahn told Illumina officials in this meeting that he "was supportive of deSouza's actions during his tenure as CEO, though [Icahn] also noted he would not repeat those comments in public," the firm wrote in its preliminary proxy statement.

Illumina's board then met over March 7 and 8 to interview and evaluate Icahn's nominees, though they later "unanimously determined not to recommend" them, the firm wrote.

Illumina's filing said the board decided not to propose a settlement with Icahn to avoid a proxy battle. However, on March 8, after being informed that Illumina would not be willing to appoint the nominees, Icahn allegedly indicated that he would be willing to consider a settlement in which two of his nominees and a "mutually agreeable independent director" be appointed to the board immediately. Moreover, he suggested the parties issue a joint statement committing to "expeditiously divest Grail" if the appeal over the European Union's jurisdiction to regulate the Grail deal was unsuccessful.

The next day, Illumina submitted a counterproposal to appoint one of Icahn's nominees and one candidate from Illumina's shortlist. Icahn declined the proposal and rescinded his offer from the day before.

On March 13, Icahn published an open letter to Illumina shareholders outlining his plan to nominate three of his associates for election to Illumina's board. The sides have each issued additional statements since then responding to each other's claims.

Icahn said the board has "presided over one of the greatest fiascoes in business history."

Illumina has repeatedly dismissed Icahn's nominees, saying they lack qualifications and experience, especially related to the firm's core business.

Andrew Teno, one of Icahn's nominees, said that Illumina "needs directors with business acumen to get out of this debacle. There's no such expertise on this board; otherwise they'd never have gotten into this mess."

Illumina has not yet set a date for the annual shareholder meeting, which will be held virtually; the 2022 meeting was held virtually in late May.

The recent SEC filing disclosed that deSouza would be owed $19.4 million in severance if terminated and that his 2022 total compensation was $26.8 million, mostly in stock and stock options, up from $14.3 million in the prior year.