European Commission Will Review Illumina-Grail Transaction Even Though EU and National Turnover Thresholds Are Not Reached
In a controversial move, the European Commission (the Commission) announced on 20 April 2021 that it would review the proposed acquisition of cancer detection test start-up Grail by genomics firm Illumina, both of the US (see, attached press release). The Commission acted on a request of France, which was backed by three further EU Member States (Belgium, Greece and The Netherlands) as well as EEA countries Iceland and Norway, under powers conferred to it by Article 22 of the EU Merger Control Regulation (Article 22).
Article 22 allows the Commission to review proposed acquisitions and mergers that would normally escape its jurisdiction because the transactions do not satisfy the turnover thresholds specified by the EU Merger Regulation. The two conditions for the application of Article 22 are that the transaction at issue should (i) affect trade between Member States; and (ii) threaten to have a significant impact on competition within the territory of the countries seeking the Commission’s help. Over the years, the Commission has handled a number of such transactions. However, the Illumina-Grail deal not only does not meet the turnover requirements of the EU Merger Control Regulation, but also remains under the radar of national merger review regimes and would therefore normally have been able to be consummated without being subjected to any competition scrutiny in Europe.
For the Commission, the Illumina-Grail transaction offered the perfect opportunity to put into practice its recent Article 22 guidance which seeks to exercise control over acquisitions and mergers which involve firms that play a significant competitive role but generate little or no turnover at the moment of the transaction. According to the Commission, this is a trend that has gained particular traction in the digital economy and the pharmaceutical industry “where innovation is an important parameter of competition”, even if the companies involved “have not yet finalised, let alone exploited commercially, the results of their innovation activities”.
The Commission expressed the concern that the combination of Illumina and Grail might, following the transaction, “restrict access to or increase prices of next generation sequencers and reagents to the detriment of the competitors of Grail active in genomic cancer tests”. The Commission’s fears were echoed by the French Autorité de la concurrence and by the Dutch Autoriteit Consument en Markt whose chairman pointed out that, even though Grail is a small company without turnover, Illumina is prepared to pay more than USD 7 billion for the company. By contrast, other national competition authorities took the position that they should not become involved by requesting the Commission’s assistance, because the transaction did not meet the turnover thresholds of their own jurisdiction.
Illumina went to court in both France and The Netherlands in an attempt to block the referral to the Commission, but failed. It will now be required to notify its proposed acquisition to the Commission and is precluded from implementing the transaction, pending the Commission’s review.
Pharmaceutical firms bent on acquiring a highly innovative player in the sector are reminded of an added layer of complexity in Europe, even if the target is small and its acquisition does not satisfy the EU and national merger control thresholds.