Carl Icahn dropped it on Friday Illuminaexecutives requested additional liability insurance before the biotech company signed a $7.1 billion acquisition of Grail in 2021.
The claim is the latest development in a battle between an activist investor and San Diego-based Illumina, who traded stabs over the Grail deal, which is under scrutiny by European antitrust authorities. Icahn, who owns a 1.4% stake in Illumina, is looking for board seats at a DNA sequencing company. The investor can also be calling on Illumina to pull back from what he calls a “disastrous” acquisition, which he says represents a “recent low level of corporate governance.”
IN recent letter to Illumina shareholdersIcahn claimed company directors demanded that she commit to providing them with “an unprecedented level of supplemental liability insurance” the day before the Grail transaction closed August 18, 2021
“Plainly privately the executives were terrified that their decision could cause them great personal harm,” Icahn wrote.
He claimed that the purchase of additional insurance for directors was “buried in the hope that nobody would notice”, adding that it was quietly disclosed in a routine filing with the Securities and Exchange Commission three months after the Grail acquisition.
He claimed that the supplemental insurance was a fourth layer of liability protection as well as to advantages comparable to “extremely broad” directors and officers or D&O, insurance paid for by Illumina. This insurance offers managers liability protection in the event that they are personally sued by employees, suppliers, investors or other parties for his or her actions in managing the company.
“To us, this smells strongly of quid pro quo – a bunch of anxious executives were reluctantly, kicking and screaming, dragged into a particularly dangerous deal by management, and eventually made their agreement conditional on receiving a fair thicker blanket of immunity than the extraordinarily lush quilt they already had,” Icahn wrote.
He also claimed that Illumina’s management selected not to tell shareholders about other negative information once they were closing the Grail deal, comparable to the way it could incur significant tax liabilities if Illumina was forced to withdraw the acquisition. He noted that the board acknowledged these potential tax implications only in Illumina’s most up-to-date annual report, filed on February 17.
Illumina said in an announcement Friday that D&O insurance and other protections are standard for firms and “support directors in making decisions in the best interests of shareholders.” The company noted that it recurrently reviews its D&O insurance to reflect “adequate coverage”.
Illumina added that the company adheres to appropriate risk management and disclosure practices.
“Illumina’s disclosures are full, transparent and timely, in compliance with the SEC and other disclosure requirements,” the company said in an announcement. “To tell investors, Illumina recurrently releases significant corporate risk aspects, including those related to GRAIL. Any suggestion to the contrary is a misrepresentation of the facts.”
Illumina won the U.S. Federal Trade Commission’s opposition to the Grail deal in September, but is fighting for approval by European regulators.
Last 12 months, the EU’s executive body, the European Commission, blocked the takeover of Illumina Grail amid concerns it might hurt consumer selection. At the time, he revealed details of a planned order that may force Illumina to terminate the contract. This might result in effective up to 10% Illumina’s annual revenue exceeded $4.5 billion last 12 months.
Illumina challenged the European Commission, arguing that the agency had no jurisdiction to block a merger between two US firms. A final decision is predicted in late 2023 or early 2024, the company said on Monday. Illumina said winning the appeal will eliminate any potential fines and “gives Illumina the best optionality to maximize shareholder value.”
On Monday, the company also said it had interviewed three of Icahn’s candidates for the board of directors and said they lacked the appropriate skills and experience. In his latest letter, Icahn reiterated his intention to present his board candidates at the company’s annual shareholder meeting.
“We firmly imagine that our three highly qualified candidates (none of whom have ever chosen to voluntarily engage in a value-destroying war against powerful antitrust regulators) are particularly well-suited for his or her experience to help Illumina executives not get cornered, ” he wrote.
Icahn’s substitute fight comes after a difficult 18 months for Illumina. The company’s market capitalization shrunk to around $34 billion from around $75 billion in August 2021, the month the Grail deal closed. Icahn had previously claimed that the acquisition worn out Illumina’s market value by $50 billion, which he said “clearly shows that shareholders have lost faith in Illumina’s management team and board of directors.”
Illumina earlier this week advertised the Grail, which claims to offer the just one available on the market early screening which may detect greater than 50 varieties of cancer with a single blood draw. The test generated $55 million in revenue in 2022 and is predicted to herald up to $110 million this 12 months, according to Illumina.
Graal relies in Menlo Park, California.