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Europe's highest court ruled Tuesday that the European Commission lacked the authority to investigate Illumina's $8 billion acquisition of cancer detection company Grail, dealing a significant blow to the bloc's merger control powers. The European Court of Justice (ECJ) determined that the commission cannot review deals referred by national competition authorities unless the transactions have a clear European nexus and meet specific national thresholds for value.

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In its judgment, the ECJ emphasized the importance of clear and predictable thresholds for merger reviews. "The Court of Justice finds that the thresholds set for determining whether or not a transaction must be notified are an important guarantee of foreseeability and legal certainty for the undertakings concerned," the court stated. This decision underscores the need for companies to easily determine whether their transactions are subject to preliminary examination and, if so, which authority will conduct the review and under what procedures.

This ruling overturns a prior decision by the General Court, which had granted the European Commission the power to scrutinize the Illumina-Grail deal despite it not meeting the necessary revenue thresholds. The General Court's ruling had been seen as a potential expansion of the commission's ability to investigate mergers and acquisitions, particularly in cases where the transactions could impact competition within the EU.

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Margrethe Vestager, the vice-president of the European Commission, expressed disappointment with the decision, noting that some transactions, even those below EU notification thresholds, could still harm competition within Europe. "We will consider the next steps to ensure that the commission is able to review those few cases where a deal would have an impact in Europe but does not otherwise meet the EU notification thresholds," Vestager said.

Illumina, on the other hand, welcomed the ruling, stating that it confirms its "longstanding view that the European Commission exceeded its authority by asserting jurisdiction over this merger." Grail did not immediately respond to requests for comment.

Background and Implications

Illumina, a California-based DNA sequencing giant, announced its plan to reacquire Grail, a company it founded in 2016 and later spun off, for approximately $8 billion in September 2020. Despite completing the acquisition in August 2021, the deal has faced significant opposition from regulators on both sides of the Atlantic, as well as from activist investor Carl Icahn.

The European Commission initially opened its investigation into the merger in July 2021, citing concerns that the transaction could lead to reduced competition within the EU. Although the deal did not meet the typical revenue thresholds for an EU merger review, the commission invoked Article 22 of the EU's Merger Regulation. This provision allows member states to request a review of a transaction even if it falls outside their jurisdiction, provided the deal could negatively affect competition or trade within the bloc.

However, the ECJ's ruling now nullifies the commission's authority to review the Illumina-Grail acquisition under these circumstances, effectively overturning the €432 million fine imposed on Illumina in July 2023 for closing the deal while the investigation was ongoing.

Moving Forward

The ECJ's decision is final and cannot be appealed, marking a significant precedent in the EU's approach to merger control. The ruling may limit the commission's ability to scrutinize mergers that do not meet existing thresholds but could still have significant competitive implications within the EU. Moving forward, companies like Illumina may find it easier to navigate the complexities of cross-border mergers, though the European Commission may seek new mechanisms to close potential gaps in its regulatory oversight.