EC showing teeth: Record-breaking fine for Illumina AND Grail

Summertime is blockbuster time, and some blockbusters are just too good to be missed. Looking at current trends, sequels still seem to be a safe pair of hands. While I cannot comment on the new Indiana Jones or Mission Impossible yet, my (and potentially the rest of the antitrust world’s) jaw(s) dropped when reading about the European Commission fining Illumina and Grail for gun-jumping in yet another chapter of the ongoing legal saga. Here are my two cents on the decision.

That’s what they call an instant classic. Almost exactly one year ago, the EU General Court ruled on the acquisition of Grail by biotech giant Illumina, confirming that the European Commission may review transactions that neither reach national nor European merger control thresholds (more on that here). We already mentioned back then that Illumina closed the transaction although the Commission had, at the time, just opened its phase 2 investigation (which meanwhile ended with a prohibition decision). In the next chapter, the European Commission now imposed the heaviest fine to date for gun jumping, amounting to approximately EUR 433 million.

Quick recap

EU merger control rules stipulate that companies looking to merge must not implement the merger until they receive approval from the Commission. The Commission already stressed in previous cases, that the “standstill obligation” is a vital aspect of the European merger control system, allowing it to carry out its due diligence and assess the potential impact of structural changes on competition before the implementation of a transaction.

In July 2021, the European Commission commenced an in-depth investigation into Illumina’s acquisition of GRAIL. With the investigation still running (and given the prohibition later on, one can assume that it did not look too good at the time), Illumina went public with a statement saying that it completed the acquisition of Grail in August 2021. Apparently, Grail merged with two wholly owned subsidiaries of Illumina whereas Grail’s shareholders were paid for their shares. Last year, the Commission sent its statement of objections (SO) to the parties, announcing its investigation into the potential violation of the standstill obligation.

Why so high

Last week, the European Commission confirmed its preliminary view of the SO, stating that Illumina and Grail intentionally breached the standstill obligation. It found that Illumina’s decision to close the deal during the ongoing investigation allowed it to exercise significant influence over Grail even before the transaction’s approval by the Commission.

For Illumina, the Commission fully used the statutory limit of 10% of the party’s turnover, resulting in a fine of approximately EUR 432 million. The amount was deemed necessary to deter similar behavior and to uphold the effective functioning of the EU merger control system. The Commission particularly stressed that Illumina acted intentionally and strategically weighed up the risk of a gun-jumping fine against the risk of having to pay a high break-up fee (which amounted to EUR 300 million) if it failed to takeover Grail. According to reports, the Commission had initially a confidential figure in mind which it first lowered to around EUR 540 million, as the parties at least accepted the Commission’s hold separate obligations, before using the statutory cap. Overall, the Commission highlighted that Illumina’s behaviour was “unprecedented”.

Not comparable in figures but similarly interesting from a legal point, Grail, as the target company, was also fined. As this was the first time the Commission also fined the target, only a symbolic fine of EUR 1,000 was imposed on Grail. In this respect, it was stressed that Grail played an active role and took legal steps to enable the completion of the transaction.

No end in sight

It is no news that the Commission does not take a joke when it comes to gun jumping. Still, the fact that the Commission fully utilizes the statutory limit for such an infringement is remarkable. Given the case’s rich history and Illumina’s bullish approach, similar decisions on a regular basis should not be expected. Still, transaction parties will think twice in the future whether the risk of infringement can be offset by commercial advantages. This is not only true for the acquirer but also for the target. In this respect, the decision should be understood as a warning sign with the potential of heavier fines in the future, also for targets which were considered relatively safe until this point in time.

Looking to the future, there is no need to fear that there will be not enough material for yet another sequel. Illumina announced that it would appeal the fining decision. At the same time, Illumina’s appeal against the General Court’s decision is also still pending.