Illumina stock tumbled Thursday after the genetics company finished its $8 billion acquisition of Grail despite an ongoing investigation by European regulators.
Evercore ISI analyst Vijay Kumar called it a “maverick move.” Canaccord Genuity analyst Kyle Mikson said closing the transaction before regulators in Europe finished reviewing it “could ultimately create more problems than benefits.”
But Illumina (ILMN) argued the European Commission doesn’t have jurisdiction to review the merger because early cancer detection specialist Grail doesn’t have business in Europe. Still, pending the investigation, Grail will be held as a separate unit, Illumina said in a news release.
In morning trading on the stock market today, Illumina stock toppled 6.4% near 478.
Illumina Stock Dives On Grail Takeover
The saga to acquire Grail has been riddled with drama. Illumina founded Grail in 2016 and soon after spun it off into an independent company. Grail makes a variety of tests to detect cancer in a patient’s blood. Last year, Illumina announced its plan to buy Grail for roughly $8 billion.
The acquisition drew concerns in the U.S. and Europe. First, the U.S. Federal Trade Commission filed to stop the takeover. Then, it withdrew the case pending the European Commission’s investigation. The latter investigation is ongoing, but the FTC reserved the right to refile its case.
Meanwhile, the deadline to merge loomed in December.
“It seems to us that regulators wanted to run down the clock and used every available delaying tactic,” Evercore’s Kumar said in a note to clients. He has a 510 price target on Illumina stock.
By closing the deal ahead of regulatory clearance, Illumina closed the door on the FTC’s ability to file for an injunction preventing the transaction. Illumina is no longer on the hook for a breakup fee. The company can now accelerate Grail’s development timelines.
“And, in the event of a non-approval from regulators, it can potentially (file an initial public offering for) Grail in the 2024/2025 time frame, closer to (Food and Drug Administration) approval/reimbursement timelines,” he said.
Analyst Remains Bullish On Deal
Canaccord’s Mikson remained bullish on Illumina stock and the Grail deal.
“The company’s decision was driven by its view that a regulatory decision appears unlikely to be made by the merger deadline,” he said in a note. “Management indicated the stakes were high, and it acted fast with only months left in the merger window.”
He noted the FTC has an administrative trial set to begin next Tuesday.
“We continue to believe that Grail adds a highly compelling growth driver to Illumina’s core business,” he said. “That said, we are hopeful that the decision to complete the acquisition before regulatory approval does not come back to bite the company.”
Still, Mikson kept his buy rating on Illumina stock.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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