Carl Icahn on Friday alleged that Illumina‘s administrators demanded further private legal responsibility insurance coverage earlier than the biotech firm signed off on a $7.1 billion acquisition of most cancers check developer Grail in 2021.
The declare is the most recent improvement in a brewing proxy battle between the activist investor and San Diego-based Illumina, who’ve been buying and selling jabs over the Grail deal that faces scrutiny from European antitrust regulators. Icahn, who owns a 1.4% stake in Illumina, is pushing for board seats on the DNA sequencing firm. The investor additionally is asking for Illumina to unwind what he calls a “disastrous” acquisition that he believes represents “a new low in corporate governance.”
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In a brand new letter to Illumina shareholders, Icahn claimed that the corporate’s administrators required that it decide to offering them with an “unprecedented level of additional personal liability insurance” safety a day earlier than the Grail deal closed on Aug. 18, 2021.
“It seems that, in private, the directors were terrified that their decision might cause them enormous personal harm,” Icahn wrote.
He alleged that the acquisition of further insurance coverage for administrators was “buried in the hope no one would notice,” including that it was quietly disclosed in a routine submitting to the Securities and Exchange Commission three months after the Grail acquisition.
He claimed the extra insurance coverage was a fourth layer of legal responsibility safety on prime of advantages like “extremely broad” administrators and officers, or D&O, insurance coverage protection paid by Illumina. That insurance coverage affords legal responsibility protection for managers if they’re personally sued by workers, distributors, buyers or different events for his or her actions in managing an organization.
“This smells strongly to us like a quid pro quo – a group of trepidatious directors were dragged reluctantly, kicking and screaming, by management into an extremely risky deal and ultimately conditioned their approval upon receiving an even thicker blanket of immunity than the extremely luxuriant comforter which they already possessed,” Icahn wrote.
He additionally alleged the Illumina board determined to not inform shareholders about different unfavourable info after they closed the Grail deal, corresponding to the way it might incur important tax liabilities if Illumina is pressured to unwind the acquisition. The board solely admitted these potential tax penalties in Illumina’s most up-to-date annual report filed on Feb. 17, he famous.
Illumina didn’t instantly touch upon Icahn’s newest salvo Friday.
Illumina prevailed over the U.S. Federal Trade Commission’s opposition to the Grail deal in September, however is combating for European regulatory approval.
Last yr, the EU’s government physique, the European Commission, blocked Illumina’s acquisition of Grail over considerations it could damage client alternative. At the time, it unveiled particulars of a deliberate order that might drive Illumina to unwind the deal. That might lead to a effective of as much as 10% of Illumina’s annual income, which hit greater than $4.5 billion final yr.
Illumina has challenged the European Commission, arguing the company lacks jurisdiction to dam the merger between the 2 U.S. firms. A remaining resolution is anticipated in late 2023 or early 2024, the corporate famous Monday. Illumina stated successful a jurisdictional enchantment would eradicate any potential effective and “gives the greatest optionality for Illumina to maximize value for shareholders.”
The firm on Monday additionally stated it has interviewed Icahn’s three nominees for its board of administrators and located they lacked related abilities and expertise. In his newest letter, Icahn reiterated his intentions to current his board nominees throughout the firm’s annual assembly of shareholders.
“We feel strongly that our three highly qualified nominees (none of whom has ever elected voluntarily to engage in a value destructive war with powerful antitrust regulators) are particularly suited because of their experience to help keep Illumina’s directors from painting themselves further into a corner,” he wrote.
Icahn’s proxy battle follows a rocky 18 months for Illumina. The firm’s market cap has shrunk to roughly $34 billion from about $75 billion in August 2021, the month it closed the Grail deal. Icahn has beforehand contended that the acquisition worn out $50 billion in Illumina’s market worth, which he stated “clearly shows that shareholders have lost faith in Illumina’s management team and board of directors.”
Illumina earlier this week touted Grail, which claims to supply the one commercially out there early screening check that may detect greater than 50 sorts of cancers via a single blood draw. The check generated $55 million in income in 2022 and is slated to rake in as much as $110 million this yr, in keeping with Illumina.
Grail is predicated in Menlo Park, California.