Illumina’s stunning victory against EU regulators changes the game for mergers

In a landmark decision that could redefine the boundaries of European merger control, the Court of Justice of the European Union (CJEU) ruled in favor of Illumina Inc., a leading U.S. gene sequencing company, against the European Commission’s attempt to block its $7.1 billion re-acquisition of cancer diagnostic company Grail Inc. This ruling not only nullifies the European Commission’s decision to investigate the merger using its rarely invoked Article 22 but also questions the EU’s authority over transactions that fall below the usual revenue thresholds for merger scrutiny.

Illumina’s victory against the European Union’s competition regulators has shocked the corporate world. The company, which initially founded Grail in 2016 and later spun it off, decided to buy it back in 2021 to integrate Grail’s cutting-edge early cancer detection technology into its portfolio. However, the European Commission, citing concerns about “killer acquisitions,” decided to probe the deal, arguing that large corporations might buy innovative startups to eliminate potential competition. Though the transaction was well below the EU’s revenue threshold for mergers, the Commission argued that the acquisition posed significant antitrust risks, triggering an investigation under Article 22.

Court Decision Challenges EU Authority

In 2022, the EU’s General Court ruled in favor of the Commission, validating its authority to investigate deals under Article 22 even when they did not meet the traditional revenue thresholds. This decision was perceived as a regulatory overreach by many corporate giants wary of increased scrutiny. However, the CJEU has now overturned that ruling, firmly stating that the European Commission exceeded its powers. The court declared that regulators must adhere strictly to the established thresholds for reviewing mergers to ensure predictability and legal certainty for companies. According to the CJEU, the Commission “is not authorized to encourage or accept referrals of proposed concentrations without a European dimension from national competition authorities where those authorities are not competent to examine those proposed concentrations under their own national law.”

Illumina, reacting to the decision, expressed relief, noting that it had long maintained that the European Commission had overstepped its authority. The company also confirmed that the €432 million ($478 million) fine it was facing for completing the acquisition without regulatory approval would now be revoked.

Implications for Future Merger Controls

The ruling is final and cannot be appealed, setting a precedent that could limit the European Commission’s authority to scrutinize smaller deals that do not meet revenue thresholds but could still affect competition. Margrethe Vestager, the European Union’s antitrust chief, acknowledged the ruling and said that the Commission would carefully review the judgment and its implications. She hinted that the Commission may explore legislative changes to strengthen its oversight of deals that, while falling below the revenue thresholds, could still impact the European market significantly.

This judgment is seen as a potential roadblock for the European Union, which has been aggressively trying to regulate large companies in the technology and pharmaceutical sectors, particularly concerning fears of “killer acquisitions.” It also raises fundamental questions about the future direction of EU competition policy and whether more comprehensive reforms will be necessary to prevent similar rulings from undermining its regulatory powers.

Is This a Game-Changer?

Legal experts and corporate analysts believe that while Illumina’s victory represents a pushback against what many see as regulatory overreach, it might not be a definitive blow to the European Commission’s regulatory ambitions. This ruling will certainly make it harder for the Commission to stretch its merger control powers in borderline cases. But it is also a wake-up call for regulators to tighten up their criteria and legislative frameworks to close any loopholes.

Illumina’s triumph could inspire other companies to challenge the European Union’s merger controls, especially in cases where the deals do not meet the EU’s notification thresholds but still attract regulatory attention. However, for Illumina, the practical benefits may be limited. In response to the original 2022 EU order, Illumina had already divested Grail, retaining only a 14.5% stake in the company. The strategic value of this victory may be more symbolic, underscoring the need for regulatory reforms to balance antitrust concerns with legal predictability.

The Road Ahead: EU Merger Policies Under Scrutiny

While Illumina’s legal battle marks a significant moment in the EU’s regulatory history, it could prompt a period of introspection for the European Commission. As the EU grapples with the implications of the CJEU’s ruling, it remains to be seen whether the Commission will double down on its regulatory frameworks or adopt a more measured approach to avoid future litigation.

The corporate world, particularly in the technology and pharmaceutical sectors, will be closely monitoring how this ruling shapes future merger control policies. For now, Illumina’s court win sends a powerful message about the limits of regulatory authority and the need for clear, predictable rules in the ever-evolving landscape of global mergers and acquisitions.