Carl Icahn’s activist play plays into the hands of Lina Khan and EU regulators

With this proxy fight, Mr. Icahn aligned himself with Lina Khan and the Federal Trade Commission (FTC), which has ruled against the $7.1 billion deal. The Grail acquisition is one where Mr. Icahn has made one of his rare mistakes and, perhaps without realizing it, has taken sides with Ms. Khan in her bid to rewrite antitrust law. Other investors have been more supportive, calling the Grail acquisition a “natural extension”  of Illumina’s technology and deeming it worth pursuing.

It’s Ms. Khan and the FTC that Mr. Icahn should be targeting, not Illumina and its leadership. Instead of forcing the company to spend resources to respond to his proxy battle, Mr. Icahn could lend his resounding voice to the growing recognition that Ms. Khan’s view of anti-trust law is misguided.

Mr. Icahn concedes Illumina is a “great company,” even though he is trying to get the CEO fired for buying Grail, the maker of a blood test that can detect more than 50 different types of cancer with few false positives.

I’ve been following this case for professional and personal reasons. A cancer survivor and advisor to CEOs, I am alive only because of the early detection of my cancer and because I benefitted from cutting-edge technology in my treatment. I know first-hand the life-and-death difference these innovations represent. 

There are published accounts of doctors using Grail’s test to detect pancreatic cancer at an early stage, operating to remove the tumor, and patients returning to their normal lives. Doctors almost never find pancreatic cancer early. We all know family and friends who have died of this awful disease because we never find it until it has spread to other parts of the body and it is too late to stop. At scale, Grail is projected to save hundreds of thousands of lives.

In this era of FTC overreach, the Illumina-Grail transaction would likely have merited little regulatory scrutiny. Ms. Khan, who was nominated “to make big structural change[s] by reviving antitrust enforcement,” according to Sen. Elizabeth Warren, has tried to unwind the deal even though there is no U.S. law or legal precedent to justify barring this vertical transaction.  

The FTC’s decision has created regulatory uncertainty, contributing to the drop in Illumina’s stock, which, in turn, has enticed Mr. Icahn to buy a stake of about 1.5%  in a typical activist play. 

Meanwhile, Mr. Icahn’s activism has distracted from the most problematic issue here: the FTC’s attempts to use novel legal theories and tactics to sink a transaction.

The FTC’s behavior, in this case, should concern every company with acquisition plans in the U.S. and Europe, given the great lengths Ms. Khan and the FTC have gone to partner with European regulators to smother this deal in its cradle.

Consider these undeniable facts: FOIA requests have uncovered a flurry of communications between the FTC and European antitrust regulators, which were followed by the European Commission (EC) pursuing a novel theory of jurisdiction–and the FTC withdrawing its own federal lawsuit to stop the deal. 

Under the EU’s own laws, any EC review of the acquisition should be barred “because Grail has an insufficient nexus with the EU.” The EU is relying on a novel interpretation of the EU Merger Regulation for its jurisdiction and that interpretation is being challenged in the EU’s highest court. In fact, as the U.S. Chamber of Commerce noted recently, the EU is trying out this “new and dramatically expanded application” of the regulations against Illumina for the first time, “even though, both companies were headquartered outside the European Union and the ‘proposed transaction did not [otherwise] meet the thresholds of EU Merger Regulation.’”

Because no one else makes a multi-cancer early detection blood test like Grail’s, the regulators’ quest to control this space is misguided. There is no other multi-cancer early detection test on the market in the U.S. and although a cancer detection test is available in parts of Europe, it tests for only a handful of cancers and uses a different technology that doesn’t rely on Illumina’s sequencing.

The EC is making up new rules to regulate companies operating in nascent markets alongside non-existent competitors who have yet to develop any products and might never do so. By implication, that means there isn’t a merger transaction anywhere in the world that the EC can’t extend a long arm in to block if the EC’s action regarding Illumina stands.  

Why did the EU get involved? The FTC knows that U.S. courts likely would look askance at its speculative case against Illumina. When, after endless agency-manufactured delays, the FTC finally tried the case before one of its own in-house judges, the judge sided with Illumina, even though FTC judges almost always find for the home team.

In fact, this was the first time ever that an FTC judge decided against the agency in a merger case, finding that combining the companies was not anti-competitive and that the FTC had failed to prove its case.  So, enlist European regulators to help further your grand design.

It’s pretty clear that Illumina is a pawn in the FTC’s grander scheme. Its real objective is to set a precedent now by grinding down a smaller life sciences company so it can apply that precedent to large tech company mergers later. That is as unwise as it is unconscionable, injuring Illumina and all of its shareholders, including Mr. Icahn, in pursuit of “structural changes” in antitrust enforcement.

With his activist play, Mr. Icahn has unwittingly played into Ms. Khan’s hands. Illumina must now fight on two fronts, but Illumina and Mr. Icahn should unite against their common foes: the FTC and Ms. Khan.

Mark S. Herr is a lawyer and former regulator who has advised CEOs and other corporate leaders for the past two decades.

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