Illumina administrators acquired extra insurance coverage to shut the Grail deal

That’s what Carl Icahn claimed on Friday EnlightenmentThe company’s directors called for additional personal liability insurance before the biotech signed a $7.1 billion acquisition of cancer test developer Grail in 2021.

The allegation is the latest development in a looming proxy fight between the activist investor and San Diego-based Illumina, which have traded blows over the Grail deal, which is under scrutiny by European antitrust authorities. Icahn, who owns a 1.4% stake in Illumina, is pushing for board seats at the DNA sequencing company. The investor is also asking Illumina to reverse what it says is a “catastrophic” acquisition that it says represents “a new low in corporate governance.”

In a new letter to Illumina shareholders, Icahn claimed that the company’s directors requested that it commit to providing them with an “unprecedented level of supplemental personal liability insurance” a day before the August 18, 2021 closing of the Grail deal .

“It appears that the directors privately feared that their decision would cause them tremendous personal harm,” Icahn wrote.

He claimed that the purchase of additional directors’ insurance was “buried in the hope that no one would notice,” adding that it was tacitly disclosed in a routine filing with the Securities and Exchange Commission three months after the Grail acquisition .

He claimed the supplemental insurance is a fourth layer of liability protection in addition to benefits such as the “extremely broad” coverage paid by Illumina for directors and officers, or D&O. This insurance provides liability protection for managers if they are personally sued by employees, vendors, investors or other parties for their actions in running a business.

“This smacks strongly of quid pro quo to us – a group of anxious directors have been reluctantly, trampled and yelled at by management into an extremely risky deal and ultimately made their approval conditional on them being given an even thicker blanket of immunity than the extreme.” lavish comforters they already possessed,” Icahn wrote.

He also claimed that Illumina’s board of directors chose not to share other negative information with shareholders when they closed the Grail deal, such as how significant tax liabilities could arise if Illumina were forced to unwind the acquisition. The board only acknowledged these potential tax consequences in Illumina’s latest annual report, filed on Feb. 17, he noted.

Illumina said in a statement Friday that D&O insurance and other protections are standard for companies and “help boards make decisions in the best interests of shareholders.” The company pointed out that it regularly checks its D&O insurance for “adequate coverage”.

Illumina added that the company has appropriate risk management and disclosure practices.

“Illumina’s disclosures are complete, transparent and timely, and comply with SEC and other disclosure requirements,” the company said in the statement. “In order to keep investors informed, Illumina regularly shares relevant corporate risk factors, including those related to GRAIL. Any other suggestion is a mischaracterization of the facts.”

Illumina won the Grail deal over opposition from the US Federal Trade Commission in September, but is fighting for approval from European regulators.

Last year, the EU’s executive body, the European Commission, blocked Illumina’s acquisition of Grail over concerns it would hurt consumer choice. At the time, it revealed details of a proposed order that would force Illumina to reverse the deal. That could result in a fine of up to 10% of Illumina’s annual revenue, which topped more than $4.5 billion last year.

Illumina has challenged the European Commission, arguing that the agency has no jurisdiction to block the merger between the two US companies. A final decision is expected in late 2023 or early 2024, the company said on Monday. Illumina said that winning a court appeal would eliminate any potential fine and “offers Illumina the greatest option to maximize shareholder value.”

The company also said Monday it interviewed Icahn’s three nominees for its board and found they lacked relevant skills and experience. In his most recent letter, Icahn reiterated his intention to present his board nominees at the annual general meeting of shareholders.

“We firmly believe that our three highly qualified nominees (none of whom have ever voluntarily decided to engage in a value-destroying war with powerful antitrust authorities) have the unique experience to prevent Illumina’s directors from becoming involved.” push further into the corner. ” he wrote.

Icahn’s proxy fight follows a bumpy 18 months for Illumina. The company’s market cap has shrunk to about $34 billion from about $75 billion in August 2021, the month it struck the Grail deal. Icahn has previously claimed that the acquisition wiped out Illumina’s $50 billion market value, which he says “clearly demonstrates that shareholders have lost confidence in Illumina’s management team and board.”

Illumina earlier this week touted Grail, which claims to offer the only commercially available early detection test that can detect more than 50 types of cancer from a single blood draw. The test generated $55 million in revenue in 2022 and is expected to bring in up to $110 million this year, according to Illumina.

Grail is based in Menlo Park, California.

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