Illumina’s upcoming annual general meeting is now the battleground of a contested election centered around the company’s willingness to take on significant regulatory risk in order to complete the reacquisition of a former subsidiary. Shareholders will choose up to nine of the twelve director nominees from a universal proxy card, with three candidates proposed by dissident Carl Icahn and nine by the board.

Illumina vs Icahn

As in any contest, there is a certain amount of tit for tat on display in the arguments that have been presented by Illumina’s management, and by Icahn Partners LP, which holds roughly 1.4% of the company’s share capital.

  • The company’s quarterly results and future targets are variously represented as a return to stable growth, or disappointing, unambitious and vague.
  • A recent acquisition is described by one side as a growth engine of unprecedented potential, by the other as a poor strategic fit.
  • Management says Icahn has no plan to generate shareholder value, Icahn says management is in the process of actively destroying shareholder value.
  • Icahn laments the size and structure of the CEO’s compensation, and management touts the introduction of a new relative total shareholder return metric to align executive pay with shareholder experience.
  • Has the board proposed to appoint two new directors after the meeting in order to bolster its skillsets and help exercise prudent, independent judgment, or to avoid shareholder scrutiny and blunt the impact of any dissident nominees who win election?
  • The debate even includes reference to dubious allegations of management profiteering emanating from a blogpost of mysterious provenance, which the company has refuted entirely, and which the dissident acknowledges it is unable to independently verify.

It’s a contest.

But underneath the hot air of the standard back and forth, there is a firm and tangible center to this vote: Illumina’s contentious $8 billion acquisition of GRAIL, a former subsidiary spun off in 2016 and notionally reacquired by the company through an agreement announced on September 21, 2020.

In the period between the execution and closing of the GRAIL deal, material regulatory opposition to the acquisition emerged in both the United States and European Union, stoking uncertainty. Notwithstanding this dynamic, and based on outside guidance, the board of Illumina ultimately determined to close the GRAIL transaction, noting that procedural delays associated with continued regulatory review risked expiration of the merger agreement and that closure was, “supported by robust external legal and regulatory advice”. Despite that advice, both the EC and FTC ordered the company to divest GRAIL. Illumina has since been forced to absorb GRAIL’s considerable operating losses, take a $4 billion impairment charge, accrue reserves representing a maximum EC fine of up to $458 million and initiate appeals processes with two of the world’s most powerful antitrust regulators.

That decision to preemptively close a transaction with clear knowledge of a turbulent regulatory environment, and the question of what to do now, are at the crux of the current battle. Icahn advocates dropping the ongoing appeals and adopting a conciliatory approach with regulators in hopes of achieving a framework for divesting GRAIL that gives shareholder the opportunity to remain invested. The company advocates staying the course, maintaining that a potential appeal victory would eliminate the current fine and provide optionality in maximizing value.

Vote Structure: Universal Proxy Card Affords Flexibility

Investors are left to make their way through the endless parade of competing arguments and additional proxy soliciting materials. However unlike in previous years, the choice they face is not simply of whether to support management or the dissident. Illumina’s upcoming meeting marks one of the first contested director elections to be decided by a universal proxy card, as is now required by the U.S. Securities and Exchange Commission. As a result, shareholders have greater flexibility to pick and choose between each side’s nominees.

Each ballot card features the names of all 12 candidates standing for election to the board, including nine company nominees and three Icahn nominees. However, only nine candidates can be elected to the board at the company’s 2023 annual meeting. Since there are more candidates standing for election than board seats to be filled, the nine nominees who receive the most votes in favor will be elected to the board.

Shareholders are permitted to vote for less than nine nominees or for any combination (up to nine total) of the management nominees and the Icahn nominees. Voting for fewer than nine nominees will have the same effect as a withhold vote for the other nominees. On the other hand, if a shareholder votes for more than nine nominees, their votes on all nominees will be invalid and will not be counted.

Looking for More?

The post above was adapted from Glass Lewis’ Proxy Paper for Illumina, Inc.’s AGM, which includes full details of the nominees, extensive background on the contest, comprehensive analysis of the financial, strategic and governance arguments presented by both sides, and Glass Lewis’ benchmark policy voting recommendations.

Glass Lewis’ timely M&A and contested meeting research gives you the information you need to make an informed decision ahead of the vote deadline. Learn more about our approach to M&A and other financial transactions.

Read the Proxy Paper

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