Gene sequencing company Illumina (NASDAQ:ILMN) has received a decree from European Union (EU) antitrust regulators to divest the cancer detection company Grail. European regulators have mandated the maintenance of Grail as a distinct entity until a suitable divestiture or sale strategy is determined. Following the news, ILMN stock fell 5.5% to close at $129.30 on October 12.
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Illumina acquired a majority share of Grail (it was already a minority owner) in 2021, regardless of the European Commission’s objection. Both the EU and the U.S. Federal Trade Commission (FTC) were scrutinizing the nature of the deal for its monopolistic nature. Illumina completed Grail’s $7.1 billion acquisition without receiving their consent. All these years, Illumina has been undergoing a trial with the EU regulators for the monopolistic nature of the takeover. In the future, if Illumina fails to comply with the EU’s decree, it could impose a fine of up to 10% of Illumina’s annual global revenue.
In the ongoing battle, Illumina was charged a fine of $475 million by the EU in July this year. On its part, ILMN has challenged the EU’s jurisdiction to investigate the merger in a Luxembourg court. Illumina has been fighting multiple challenges, including stiff investor activism led by billionaire investor Carl Icahn. Icahn has won a series of rounds in the battle, including the ousting of Board Chair John Thompson, the stepping down of CEO Francis DeSouza, and the company’s decision to cut its workforce and maintain efficiency.
Is Illumina a Buy, Sell, or Hold?
Following the EU’s decree, Canaccord Genuity analyst Kyle Mikson reiterated a Buy rating on ILMN stock and a price target of $285, implying a whopping 118.6% upside potential. Year-to-date, ILMN stock has lost 35.1%.
Mikson noted that, going by the EC’s order to maintain Grail as a separate entity, it would require approximately $1 billion in capital. This could prove costly for Illumina. On the brighter side, if Illumina prevails in its legal challenges against the EU’s order, it could potentially retain Grail and sustain its ongoing operations. Further, the analyst says that Illumina could shed some more light on the EU’s order in its upcoming Q3FY23 results scheduled for November 9.
Other Wall Street analysts do not share the same enthusiasm for Illumina as Mikson. On TipRanks, Illumina stock has a Hold consensus rating based on six Buys, five Holds, and three Sell ratings. Also, the average Illumina price target of $198.14 implies 51.9% upside potential from current levels.
