Carl Icahn is struggling for control Illumina ,ILMN) after which the activist investor called the acquisition of Grille “ill-advised and frankly inexplicable”. In response, ILMN stock jumped on Monday.
Icahn sent a letter to Illumina shareholders criticizing its $8 billion acquisition of cancer screening player Grail — a deal that went through despite opposition from European regulators. He plans to nominate three people to Illumina’s board of directors.
But Illumina says the nominees lack the skills and experience to join the board. They include two former Icahn employees, Jesse Lin and Andrew Tenno, and Vincent Entrii, a former employee. The board recommended in a written statement that shareholders veto Icahn’s nominees.
In later trading today on the stock market, ILMN stock rose a fraction. During the regular session, the stock closed up 17% at 226.94. According to MarketSmith.com, shares are consolidating with a buy point at 248.97.
ILMN Stock: Earnings under pressure
Icahn criticized Illumina’s Grail saga in a series of bullet points. Performs a cancer screening test called Grail Gallary. Using a blood sample, Galleri screens for more than 50 types of cancer.
Illumina formed Grails in 2016 for early cancer detection. Three years ago, Illumina said it had reached a deal to buy Grail for $8 billion. But regulators in the US and Europe refused, saying it would give Illumina an unfair market advantage. Illumina acquired Grail over his objections.
“Perhaps the overpayment can be forgiven for the venture business, but it is inexplicable and inexplicable that in these circumstances the management team and board of directors went ahead with the deal without first ascertaining whether they would receive approval from European regulators,” Icahn said in his letter.
He said that since buying Grail, Illumina’s stock has plummeted. Shares peaked in February and August 2021, and have since fallen. Illumina will complete its Grail acquisition in August 2021. Last September, the European Commission blocked Illumina’s acquisition of Grail.
Since then, Illumina has had to keep Grail as a separate entity on its balance sheet. This is problematic, says Evercore ISI analyst Vijay Kumar, because the Grail is still spending $500 million to $700 million a year, despite worsening financial market conditions.
“If Grail was like any other recent (initial public offering), we suspect the company would have a massive restructuring plan and right-sizing its spending to strengthen capital markets,” he said. Instead, Grail’s expenses have soared at the expense of Illumina’s earnings.
“The crux of the issue is this, the (earnings per share) decline has had an impact on stocks,” he said.
Kumar has outperform rating and has 250 price target on ILMN stock.
Illumina returns to Icahn
Illumina says Icahn doesn’t understand the regulatory process.
“Icahn’s letter neither recognizes the real value that Grail can provide to Illumina’s shareholders, nor reflects an understanding of the regulatory process,” the company said.
Illumina says it is in the process of divesting Grail “unless Illumina wins a judicial appeal in the meantime.”
Both Evercore’s Kumar and Canaccord Genuity analyst Kyle Mixon believe in Grail’s approach. Kumar said that may be too long a horizon for Illumina’s investors. Mikson said Illumina stock is likely to rise as the separation from Grail “becomes more likely or closer to fruition.”
The outcome of the proxy fight is difficult to predict, said Canaccord’s Mikson. A proxy fight could lead to a turnover in management.
“But if there is one here, we are relatively confident that investors will view this event as a net positive as it could increase the likelihood that the Grail split has taken place in the near term and the process is not further drawn out,” Mixon said. In a note to said customers.
Mikson has a buy rating and 300 price target on ILMN stock.
Follow Allison Gatlin on Twitter @IBD_AGatlin,
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