NEW YORK – Shares of Illumina rose more than 20 percent in midday trading on the Nasdaq on Monday following a report that billionaire activist investor Carl Icahn plans to start a proxy fight for influence on the firm's board of directors in order to divest its Grail subsidiary.
First reported by the Wall Street Journal on Sunday, Icahn has drafted a letter to Illumina shareholders, made public by the firm on Monday in a filing with the US Securities and Exchange Commission, that outlines plans to take control of three board seats with the goal of promptly divesting Grail, the early cancer detection testing firm Illumina acquired in 2021.
European competition regulators have objected to that deal and are likely to issue a divestiture order this year. Illumina has challenged the regulatory proceedings on multiple fronts; however, company officials have more recently signaled a willingness to offload Grail.
"We are convinced that at least three shareholder representatives are needed on Illumina's board to attempt to put an end to this insanity now before the reckless decision making escalates into a no-return situation," Icahn wrote in the letter, adding that he tried to sway Illumina's board privately, to no avail.
Icahn, who directly controls about 2.2 million Illumina shares, or 1.4 percent, plans to install three people either currently or formerly employed by him to Illumina's board: Vincent Intrieri, Jesse Lynn, and Andrew Teno.
In a statement on Monday, Illumina said CEO Francis deSouza and board Chairman John Thompson "engaged in multiple conversations" with Icahn and met with Intrieri, Lynn, and Teno.
"Icahn was explicit and unyielding in his demand that any resolution should give him outsized influence and control," the firm said. "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 Mr. Icahn's three nominees to the board of Illumina."
Illumina may have been already preparing for the incoming proxy battle. According to a Feb. 1 filing with the SEC, Illumina amended its bylaws related to proxy voting.
When asked by GenomeWeb at last month's Advances in Genome Biology and Technology meeting about the reasons for the bylaw amendments and if he was expecting a fight over board seats, deSouza declined to comment.
On Feb. 9, Illumina Global Head of PR David McAlpine said in an email that the firm does "not expect contested director elections."
"The recently adopted bylaw amendments are similar to bylaw amendments that have been adopted by many public companies since the SEC's universal proxy card rules came into effect in 2021," he wrote. "They are designed to safeguard the interests of all stockholders in the event of contested director elections. Illumina is committed to effective corporate governance, and we strongly believe that these amendments are in the best interest of our stockholders."
Illumina has seen its share price fall by more than 50 percent from an all-time high in August 2021, when the firm announced it would acquire Grail for approximately $8 billion, despite ongoing investigations from competition regulators in both the US and Europe. The broader Nasdaq composite index has fallen 25 percent over the same time frame.
Illumina has been operating Grail separately and has said it will do so until the legal proceedings are resolved. So far, the firm has tallied losses of approximately $4.44 billion related to the deal: a $3.91 billion "goodwill impairment" in the third quarter of 2022 and $453 million set aside for potential fines from the EU for jumping the gun on the acquisition.
"We've argued Grail, while longer term could be a valuable impactful asset, is a material drag on ILMN's share performance and should be separated, and hence have viewed a Grail exit as a positive catalyst for the stock," TD Cowen analyst Dan Brennan wrote in a note to investors on Monday.
Illumina had a different take, though. "Icahn's letter neither recognizes the real value that Grail can provide to Illumina's shareholders, nor reflects an understanding of the regulatory process," the company said in its statement. "Illumina expects to execute a divestiture based on the terms of the final order, expeditiously and in a manner that serves the best interests of Illumina's shareholders, unless Illumina wins the jurisdictional appeal in the meanwhile."
Icahn has a long history of starting proxy fights, including with eBay, Yahoo, and McDonald's.
"The reckless decision to close the Grail deal over the objections of European regulators created a staggering amount of risk," Icahn wrote. "If Illumina continues on its current path, the cost of fighting powerful regulators, especially when they obviously believe strongly in their position, will become extremely expensive no matter what happens. … We believe it is essential that Illumina extricate itself immediately from the dire position it might well sink into financially if it remains on this perilous course."
Illumina declined to provide additional comment, and Icahn did not immediately respond to a request for additional comment.