Illumina/Grail: lessons from a landmark case (III)

The Illumina/Grail case comes back to the fore. In previous posts (here and here), we summarized the most important “lessons” from this landmark case in merger control. We commented on the European Commission’s resort to article 22 of Regulation (EC) 139/2004 to review the transaction and its decision to impose gun-jumping fines on both parties—and not just the acquirer.

In October 2023, the European Commission adopted a decision requiring the parties to unwind the acquisition and restore the pre-merger competitive situation. Illumina challenged this decision before the General Court (“GC”). In this post we delve into the impact of the European Commission’s decision and its implications for future mergers.

Lesson 5: The consequences of prohibiting an already completed acquisition

The most immediate consequence of completing a merger before notification or clearance (i.e., gun-jumping) is the initiation of sanctioning proceedings that usually result in the imposition of a fine. The Illumina/Grail case is not an exception: the Commission imposed fines amounting to €432 million.

However, the fine for failing to notify or for completing the transaction before clearance does not exclude the substantive merger review. Regardless of the fine, the parties involved in gun-jumping must notify the transaction—even if it is already completed.

In most cases, the European Commission and the Spanish competition authority (CNMC) concluded that the merger at hand posed no threat to effective competition in the market and cleared them ex post. The Illumina/Grail case is an exception in this regard, since the European Commission identified a negative impact on innovation. Therefore, in its decision of September 6, 2022, the Commission prohibited the concentration and required its dissolution to restore the previous competitive situation.

Consistent with the above, in its decision of October 12, 2023, the Commission ordered Illumina to unwind the acquisition of Grail. While the U.S. laboratory may freely decide on the terms of the divestment (e.g., through a share sale or tender offer), Illumina must submit a divestment plan for approval by the Commission. In addition, the sale must comply with the following requirements, aimed at effectively restoring the pre-merger situation:

• After the divestment, Grail’s independence from Illumina must be at least equivalent to that enjoyed before the acquisition.
• Grail must be as viable and competitive after the divestment as it was before the acquisition.
• The divestment must be carried out within strict deadlines, so as not to prolong the interim situation beyond what is necessary.

In addition, the Commission has imposed a series of transitional measures aimed at ensuring Grail’s independence until the divestment is completed. In particular, Illumina must ensure (i) separation of Grail’s management from its parent company to prevent further integration; and (ii) Grail’s economic viability until its sale, by continuing to fund its early cancer detection test project.

Illumina has challenged the European Commission’s decision before the GC (case T-1190/23), but this will not delay Grail’s divestment process.

Conclusions

Regulation (EU) no. 139/2004 provides for the possibility of ordering a divestment, which is a logical consequence in gun-jumping cases. However, this is the first time that the Commission has issued a decision of this type, so we will remain attentive to developments.

In any case, it cannot be ruled out that, even before the GC issues its judgment, the measures the Commission imposed for the divestment of Grail may be rendered ineffective or may have to be adjusted depending on the success of other pending appeals:

• appeal before the CJEU in relation to the application of article 22 of Regulation (EU) 139/2004 (case C-611)
• appeal before the GC in relation to the prohibition of the concentration (case T-709/22)
• appeals before the GC in relation to the Commission’s interim measures (cases T-755/21 and T-5/23)
• appeals before the GC in relation to the gun-jumping sanctions (case T-591/23)