In re Illumina, Inc. Consolidated Derivative Stockholder Litigation

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN RE ILLUMINA, INC. ) CONSOLIDATED DERIVATIVE ) Consol. C.A. No. 2024-1337-PAF STOCKHOLDER LITIGATION ) MEMORANDUM OPINION Date Submitted: February 13, 2026 Date Decided: October 30, 2026 Justin O. Reliford, Karen Kam, SCOTT+SCOTT ATTORNEYS AT LAW LLP, Wilmington, Delaware; Maxwell R. Huffman, SCOTT+SCOTT ATTORNEYS AT LAW LLP, San Diego, California; Donald A. Broggi, SCOTT+SCOTT ATTORNEYS AT LAW LLP, New York, New York; Joseph L. Christensen, CHRISTENSEN LAW LLC, Wilmington, Delaware; Christine M. Mackintosh, Edward M. Lilly, GRANT & EISENHOFER P.A., Wilmington, Delaware; Ned Weinberger, Brendan Sullivan, LABATON KELLER SUCHAROW LLP, Wilmington, Delaware; John Vielandi, Guillaume Buell, LABATON KELLER SUCHAROW LLP, New York, New York; Eric L. Zagar, Lauren C. Lummus, KESSLER TOPAZ MELTZER & CHECK, LLP, Radnor, Pennsylvania; Jeremy Friedman, David Tejtel, David Rosenfeld, FRIEDMAN OSTER & TEJTEL PLLC, Bedford Hills, New York; Peter B. Andrews, Craig J. Springer, David M. Sborz, Jacob D. Jeifa, ANDREWS & SPRINGER LLC, Wilmington, Delaware; Christina D. Saler, COHEN MILSTEIN SELLERS & TOLL PLLC, Philadelphia, Pennsylvania; Christopher Lometti, Amy Miller, Richard A. Speirs, COHEN MILSTEIN SELLERS & TOLL PLLC, New York, New York; Attorneys for Lead Plaintiffs for the Consolidated Derivative Action. A. Thompson Bayliss, Eric A. Veres, Michael T. Manuel, ABRAMS & BAYLISS LLP, Wilmington, Delaware; William Savitt, Jonathan M. Moses, Lauren M. Kofke, Adabelle U. Ekechukwu, Emily R. Barreca, Valeria Flores, WACHTELL, LIPTON, ROSEN & KATZ, New York, New York; Attorneys for Defendants Francis deSouza, John W. Thompson, Frances Arnold, Caroline Dorsa, Robert Epstein, Scott Gottlieb, Gary Guthart, Philip Schiller, and Susan Siegel. Peter J. Walsh, Jr., Michael A. Pittinger, Justin T. Hymes, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Kevin J. Orsini, Brittany L. Sukiennik, CRAVATH, SWAINE & MOORE LLP, New York, New York; Attorneys for Nominal Defendant Illumina, Inc. FIORAVANTI, Vice Chancellor  In this stockholder derivative action, plaintiffs allege that officers and directors of Illumina, Inc. breached their fiduciary duties by causing the company to consummate a merger in violation of European Union merger regulations and United States antitrust laws. Plaintiffs allege that the defendants caused Illumina to violate positive law, giving rise to personal liability under In re Massey Energy Co., 2011 WL 2176479 (Del. Ch. May 30, 2011). The plaintiffs assert that demand would have been futile because a majority of Illumina’s directors face a substantial likelihood of personal liability as to the underlying claim. The defendants have moved to dismiss the operative complaint under Court of Chancery Rule 23.1 for failure to plead demand futility and Rule 12(b)(6) for failure to state a claim upon which relief can be granted. The defendants’ motion to dismiss is granted because demand on the Illumina board of directors is not excused. I. BACKGROUND The facts are drawn from the allegations of the verified amended complaint (the “Amended Complaint”), the documents integral thereto, and documents of which the court may take judicial notice. See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004).1 1 Further, “[t]he court may take judicial notice of facts publicly available in filings with the SEC.” See Omnicare, Inc. v. NCS Healthcare, Inc., 809 A.2d 1163, 1167 n.3 (Del. Ch. 2002).  A. Illumina and GRAIL Nominal Defendant Illumina, Inc. (“Illumina” or the “Company”) is a Delaware corporation. 2 Its common stock is publicly traded on the Nasdaq Global Select Market under the ticker symbol “ILMN.”3 Illumina is a biotechnology company and the leading global supplier of next-generation sequencing (“NGS”) platforms for genetic and genomic analysis, which include NGS instruments, consumables, and ancillary services. 4 NGS is a method of DNA sequencing used in a variety of medical applications, including multi-cancer early detection (“MCED”) tests. 5 All MCED tests rely on Illumina’s NGS platforms to generate their results. Citations to the docket in this action are in the form of “Dkt. [#].” The operative complaint in this action is the Verified Amended Stockholder Derivative Complaint filed in The Pavers and Road Builders Benefit Funds v. deSouza, C.A. No. 2024-1337-PAF on August 8, 2025 (Dkt. 21), which will be cited as “Am. Compl.” Citations to exhibits attached to Affidavits of M. Manuel at Dkt. 24 and Dkt. 33 are cited as “Defs.’ Ex. [#].” Before filing this action, Plaintiff Pavers and Road Builders Benefit Funds (“Pavers”) pursued and received books and records pursuant to 8 Del. C. § 220. The Amended Complaint cites many of those documents. The parties do not contest that under the incorporation by reference doctrine, the court may consider those documents and Defendants’ exhibits in support of the Motion to determine whether the Amended Complaint has accurately referenced their contents in support of its claims and in pleading demand futility. Reiter v. Fairbank, 2016 WL 6081823, at *5–6 (Del. Ch. Oct. 18, 2016). 2 The defendants include the individuals on Illumina’s Board of Directors (the “Board”) as of the merger’s closing on August 18, 2021: John W. Thompson, Francis deSouza, Frances Arnold, Caroline D. Dorsa, Robert S. Epstein, Scott Gottlieb, Gary S. Guthart, Philip W. Schiller, and Susan E. Siegel (collectively, the “Director Defendants,” collectively with Illumina, the “Defendants”). 3 Am. Compl. ¶ 21. 4 Id. 5 Id. ¶ 2. 2  In 2013, Illumina acquired a business specializing in non-invasive prenatal tests using Illumina’s NGS technology. 6 After the acquisition, the prenatal test unexpectedly detected cancer signals. Seeking to build on that discovery, Illumina formed GRAIL, Inc. (“GRAIL”) in 2015 as a wholly owned subsidiary to focus on creating a MCED test, which it named Galleri.7 To raise the necessary capital to pursue Galleri, Illumina spun off GRAIL in 2017, which reduced Illumina’s equity stake to 12%.8 B. GRAIL Contemplates an IPO and Illumina Considers Reacquiring GRAIL In May 2019, GRAIL’s Galleri MCED test received “Breakthrough Device” status from the FDA.9 In May 2020, GRAIL completed a $390 million Series D financing, reflecting a valuation of $4.15 billion. One month later, GRAIL began taking early steps toward an initial public offering (“IPO”).10 1. Illumina approaches GRAIL While GRAIL was pursuing an IPO, Illumina embarked on a reacquisition of GRAIL. On July 31, 2020, GRAIL confidentially submitted its Form S-1 to the 6 Id. ¶ 53. 7 Id. ¶¶ 54, 56. 8 Id. ¶ 58. 9 Id. ¶ 61. 10 Id. ¶ 63. 3 Securities and Exchange Commission (“SEC”) for its contemplated IPO.11 Later the same day, Illumina’s CEO, Francis deSouza, met with GRAIL’s CEO, Hans Bishop, expressing Illumina’s desire to explore a potential acquisition of GRAIL.12 After deSouza’s initial outreach, Illumina and GRAIL moved quickly. On August 4, deSouza and Illumina management “request[ed] approval [from the Board] to engage with GRAIL.” 13 The Board convened to discuss GRAIL and received presentations concerning key diligence areas, along with antitrust considerations.14 The Board and management met again the next day to discuss “follow-up questions and actions” on the “proposed [GRAIL] acquisition.” 15 The Board also discussed increasing D&O insurance from a $120 million to a $150 million total limit, with the $30 million increase in “A-Side only coverage due to ‘increased derivative actions with notable settlements,’” for a total cost of $10 million retention and a $3.8 million premium. 16 11 Id. ¶ 66. 12 Id. 13 Id. 14 Id. ¶ 67. 15 Id. ¶ 68. 16 Id. “Side A coverage is used to protect the [directors and officers] for defense costs, settlement amounts or judgments when the company does not or is unable to indemnify them” whereas “[s]ide B coverage, or company reimbursement coverage, is used to reimburse the company when it indemnifies the [directors and officers.]” Agostino A. Zammiello, An Overview of D&O Insurance and Its Applicability in Bankruptcies, Am. Bankr. Inst. J., June 2025, at 26 (2025). 4  On August 11, the two companies signed a non-disclosure agreement.17 Through August and into early September, the Board continued to meet and discuss possible proposals and counterproposals to reacquire GRAIL.18 On September 14, five days after GRAIL registered its IPO with the SEC, Illumina’s Board met to receive an update on the merger negotiations and hurdles to closing a transaction with GRAIL. Illumina’s chief financial officer, Sam Samad, “confirmed that Antitrust Efforts would involve reasonable best efforts to secure antitrust approvals, including behavioral commitments (but not including divestitures) and litigation to resist a regulator effort to block the transaction,” would include a reverse break-up fee of $300 million, and would have a twelve month outside date, with a 3-month possible extension.19 At the end of the meeting, the Board passed a resolution “related to financing the GRAIL acquisition.” 20 On September 20, Illumina and GRAIL executed the merger agreement, providing for Illumina to acquire the remaining 85.5% of GRAIL equity that it did not already own.21 The merger valued GRAIL at $8.3 billion, plus contingent payments. 17 Am. Compl. ¶ 69. 18 Id. ¶¶ 70–72, 75. 19 Id. ¶ 79–80 (citation modified). 20 Id. ¶ 80. 21 Id. ¶¶ 82–83; Defs.’ Ex. 35 (the “Merger Agreement”). 5  The merger was conditioned on receiving regulatory approvals and no governmental authority blocking the merger: No Order. No Governmental Authority 22 shall have enacted, issued, promulgated, enforced or entered any Law, whether temporary, preliminary or permanent (collectively, a “Restraint”), which is then in effect and has the effect of enjoining, restraining, prohibiting or otherwise preventing the consummation of the Transactions. Regulatory Approvals. (i) Any waiting period (and any extension thereof) applicable to the consummation of the Mergers under the HSR Act shall have expired or been terminated and (ii) any approval or waiting period with respect to those jurisdictions set forth in Section 8.01(d) of the Company Disclosure Letter shall have been obtained or terminated or shall have expired. 23 The parties could waive the closing conditions in writing. The parties agreed to use reasonable best efforts to obtain all necessary actions, nonactions, and consents from Governmental Authorities. The parties also agreed that “reasonable best efforts” included offering and agreeing to undertake certain “Permitted Restrictions” to obtain pre-merger clearance in the U.S., UK, and Germany. “Reasonable best efforts” did not include divestment, holding separate 22 “Governmental Authority” is defined as any federal, national, foreign, supranational, state, provincial, county, local or other government, governmental, regulatory or administrative authority, agency, instrumentality or commission or any court, tribunal, or judicial or arbitral body of competent jurisdiction. Merger Agreement § 1.01. 23 Id. § 8.01(c), (d). 6 commitments, or any limitation on the ability of Illumina or its subsidiaries to acquire, hold, or exercise rights of ownership of GRAIL stock.24 The Merger Agreement specified that either Illumina or GRAIL could terminate the Merger Agreement if the closing conditions were not met by September 20, 2021 (the “Outside Date”). 25 Either party could unilaterally extend the Outside Date to 11:59 p.m., Eastern Time on December 20, 2021, to obtain regulatory approvals if all other closing conditions were met, except those pertaining to regulatory approvals and restraints in Section 8.01(c) and (d). 26 Additionally, either Illumina or GRAIL could terminate the Merger Agreement if any Restraint in Section 8.01(c) became final and non-appealable, except that “an Initial Enforcement Order made by the Competition and Markets Authority pursuant to Section 72(2) of the UK Enterprise Act 2002 is not considered a Restraint for the purposes of” Section 9.01(b)(ii). 27 If regulatory approvals were not obtained, or could not be obtained due to certain regulatory restraints, Illumina would pay GRAIL a $300,000,000 regulatory break-fee. 28 24 Id. § 7.07. 25 Id. § 9.01(b). 26 Id. § 9.01(b)(i). 27 Id. § 9.01(b)(ii). 28 Id. § 9.03(a). 7  C. Antitrust Review 1. Initial FTC review On October 9, 2020, Illumina and GRAIL notified the United States Department of Justice and the Federal Trade Commission (“FTC”) of the merger, pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18A (“HSR”). The FTC took jurisdiction and quickly raised concerns that the proposed merger violated Section 7 of the Clayton Act,29 which prohibits mergers where, “in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” 30 The FTC took a hardline stance against the merger. In October 2020, Illumina and GRAIL informed the FTC that they were open to reaching a settlement that would permit the parties to close the merger; the FTC refused to negotiate. Illumina also offered during early meetings with the FTC to negotiate a consent decree; the FTC again refused to negotiate.31 The Board met from November 3–5. During those meetings, it received a thirty-minute update on GRAIL and the merger, which included the first update on 29 15 U.S.C. §§ 12–27; 29 U.S.C. §§ 52–53. Section 7 of the Clayton Act is found at 15 U.S.C. § 18. 30 Am. Compl. ¶ 91. 31 Id. ¶ 92. 8 the ongoing antitrust regulatory reviews that were taking place in the United States and expected in the United Kingdom. Management opined that only the United States and United Kingdom had jurisdiction to challenge the merger; therefore, the process would likely begin in mid-November.32 On November 9, the FTC made a “Request for Additional Information,” colloquially known as a “Second Request,” and initiated its investigation of the merger. 33 The investigation took six months, with Illumina and GRAIL producing millions of documents, providing narrative responses to FTC inquiries, and making employees available for hearings with the FTC. 34 The Second Request extended the HSR waiting period and prevented Illumina and GRAIL from closing the merger until they had “substantially complied” with the Second Request, and observed a second waiting period. 35 32 Id. ¶ 93. 33 Id. ¶ 94. The Second Request is an “extensive subpoena seeking both documents and data,” and compliance with a Second Request “significantly expands both the scope and length of the agencies’ merger review process and imposes considerable burdens on merging parties.” Olivier N. Antoine et al., King & Spalding, The Department of Justice Announces “Targeted” and “Expedited” Merger Investigations (July 27, 2026), https://www.kslaw.com/insights/articles/the-department-of-justice-announces-targeted %E2%80%9D-and-expedited%E2%80%9D-merger-investigations; see Gordon Schnell, The “Pull and Trigger”: A simple way to side-step the dreaded HSR Second Request, 9 Andrews Antitrust Litigation Reporter 6 (Dec. 2001) (“From a regulatory standpoint, next to an actual lawsuit brought by the government to block the proposed transaction, there is nothing more worrisome to merging parties than the mighty second request.”). 34 Am. Compl. ¶ 94. 35 Id. 9  At a February 9 Board meeting, Illumina’s General Counsel, Charles Dadswell, and Illumina’s outside legal counsel “reported that the United Kingdom Competition and Markets authority . . . was not reviewing the GRAIL acquisition and provided an update on the ongoing antitrust regulatory review taking place in the United States.”36 The Board was told that the FTC’s decision on the merger was expected in early April 2021. The Board discussed integration planning for the merger—a “critical issue for the near future”—and received a presentation outlining a plan to operate GRAIL as a stand-alone division.37 To address FTC and customer concerns over the continued ability of Illumina’s current customers to “purchase Illumina’s NGS products post-merger on the same terms and conditions as pre-merger,”38 Illumina crafted an “Open Offer.” The Open Offer was a “standardized supply contract,” which “require[d] Illumina to provide its NGS platforms at the same price and with the same access to services and products that it provided to GRAIL.”39 Throughout February and March, Illumina shared iterations of the Open Offer with the FTC and met with the FTC Commissioners. Illumina also shared a form of a proposed consent decree and 36 Id. 37 Id. ¶¶ 98, 100. 38 Id. ¶ 95; Defs.’ Ex. 32 (In re Illumina, Inc. & GRAIL, Inc., No. 9401, ¶ 878 (F.T.C. Sep. 9, 2022) (initial decision of F.T.C. Chief Administrative Law Judge D. Michael Chappell) (hereinafter the “ALJ Initial Decision”)). 39 Am. Compl. ¶ 95. 10 offered to negotiate a consent resolution.40 The FTC did not engage in negotiations with Illumina, nor did the FTC provide feedback on the terms of the Open Offer or make a counteroffer. 41 On March 30, 2021, Illumina published the Open Offer on its website, making it available to all for-profit U.S. oncology customers who purchase NGS products for developing or commercializing oncology tests. 42 The Open Offer was drafted to take effect immediately after the closing. It was to expire on August 18, 2033, and would be held open for any of Illumina’s for-profit U.S. oncology customers to accept at any time until August 18, 2027.43 2. EC antitrust developments Illumina’s regulatory review was not limited to U.S. authorities. Article 22 of the European Union Merger Regulations (“EUMR”) allows EU member states to request the European Commission (“EC”) examine mergers that affect trade between 40 Id. ¶ 101. 41 Id. ¶¶ 105–06. The FTC Commissioners ultimately described the deficiencies that they identified in the Open Offer, specifically that “the Open Offer’s marquis price parity provision was meaningless as to GRAIL because: (i) GRAIL, as an Illumina subsidiary, would not actually pay a price for the NGA platforms; (ii) the service parity provision would be virtually impossible to enforce; and (iii) it was impossible to predict all of the ways that Illumina could otherwise favor GRAIL during the Open Offer’s term.” Am. Compl. ¶ 110 (citing In re Illumina, Inc. & GRAIL, Inc., No. 9401, at 66–73 (F.T.C. Mar. 31, 2023) (hereinafter the “Opinion of the Commission”)). 42 ALJ Initial Decision at 876–77; see Am. Compl. ¶ 108. 43 Am. Compl. ¶ 95. 11 member states and threaten to significantly affect competition within the requesting member state.44 In September 2020, the EC previewed amendments to its merger referral policy, which could alter the antitrust regulatory landscape for the merger. The amendments, in a departure from prior practice, enabled the EC to “start accepting referrals from national competition authorities of mergers that are worth reviewing at the EU level—whether or not those authorities had the power to review the case themselves.”45 The EC contacted Illumina via email in late February 2021 to propose a call, which took place on March 4. 46 In mid-March, the Board met to review GRAIL’s regulatory status, including the ongoing FTC review and potential EC review following a referral from the French competition authority.47 On March 31, 2021, the day after the Open Offer went live on Illumina’s website, the EC issued “[g]uidance on the application of the referral mechanism set 44 Jay Mondrall, EU Commission Launches Major Merger Control Reform, Kluwer Competition Law Blog (Apr. 1, 2021), https://legalblogs.wolterskluwer.com/competition- blog/eu-commission-launches-major-merger-control-reform/. 45 Am. Compl. ¶ 77 (citing Article 22 EW Merger Referrals, Latham & Watkins at 2 (Sep. 18, 2020), https://www.lw.com/admin/upload/SiteAttachments/LW Client briefing - Article 22 EU merger referrals.pdf). 46 Id. ¶ 102. 47 Id. ¶ 104. Attorneys from Cravath, Swaine & Moore, LLP (“Cravath”) presented on the timing of the possible reviews. Id. The Board met again on March 28, 2021, and received another regulatory update, this time from Dadswell. Id. ¶ 107. 12 out in Article 22 of the EUMR to certain categories of cases.” 48 The March 31 guidance confirmed the adoption of policy changes that the EC had initially previewed in September 2020. 49 The guidance explained that the EC would, effective immediately, begin accepting referrals from EU member states for business combinations which “affect trade between [m]ember [s]tates; and [] threaten to significantly affect competition within the territory of the [m]ember [s]tates or [s]tates making the request” including those states which would “not have initial jurisdiction over the case.”50 This guidance departed from the EU’s historical “practice of discouraging referral requests under Article 22 from [m]ember [s]tates that did not have original jurisdiction over the transaction at stake . . . [because] such transactions were not generally likely to have a significant impact on the internal market.”51 The EC described the basis for the change: In recent years, however, market developments have resulted in a gradual increase of concentrations involving firms that play or may develop into playing a significant competitive role on the market(s) at stake despite generating little or no turnover at the moment of 48 European Commission Communication from the Commission, C 113/1, Guidance on the Application of the Referral Mechanism Set Out in Article 22 of the Merger Regulation to Certain Categories of Cases (Mar. 31, 2021), eur-lex.europa.eu/legal- content/EN/TXT/PDF/?uri=CELEX:52021XC0331(01) (“EC March 31, 2021 Guidance”) at 1. 49 Am. Compl. ¶ 111. 50 EC March 31, 2021 Guidance ¶¶ 11, 13. 51 Id. ¶ 8. 13  concentration. These developments appear particularly significant in . . . sectors such as pharmaceuticals and others where innovation is an important parameter of competition, [and] there have been transactions involving innovative companies conducting research & development projects with strong competitive potential, even if these companies have not yet finalised, let alone exploited commercially, the results of their innovation activities. 52 The guidance also explained that the suspension obligation, more colloquially known as the “standstill obligation,” set out in Article 7 of the EUMR53 imposes restrictions on closing a transaction if that transaction “has not been implemented on the date on which the [EC] informs the undertakings concerned that a referral request 52 Id. ¶ 9. 53 Article 7 of the EUMR provides, in pertinent part: 1. A concentration with a Community dimension as defined in Article 1, or which is to be examined by the Commission pursuant to Article 4(5), shall not be implemented either before its notification or until it has been declared compatible with the common market pursuant to a decision under Articles 6(1)(b), 8(1) or 8(2), or on the basis of a presumption according to Article 10(6). .... 3. The Commission may, on request, grant a derogation from the obligations imposed in paragraphs 1 or 2. The request to grant a derogation must be reasoned. . . . 4. The validity of any transaction carried out in contravention of paragraph 1 shall be dependent on a decision pursuant to Article 6(1)(b) or Article 8(1), (2) or (3) or on a presumption pursuant to Article 10(6). .... 14 has been made.” 54 The suspension obligations expire when the EC decides to not examine a transaction. 55 The changes signaled a major change in EC policy.56 3. The FTC sues Illumina to block the merger and the EC accepts referral of the merger On the same day the Open Offer went live and the EC announced its acceptance of a wider array of referrals, the FTC Commissioners voted unanimously to authorize the filing of both an administrative complaint and a preliminary injunction action to block the merger.57 Illumina issued a press release the same day stating, “Illumina . . . disagrees with, and will oppose, the [FTC]’s challenge to its previously announced acquisition of GRAIL. . . . Illumina will pursue its right to proceed with the transaction, the impact of which would accelerate the adoption of a breakthrough multi-cancer early detection blood test.” 58 The next day, the FTC filed a complaint in the United States District Court for the District of Columbia seeking a temporary restraining order to prevent the merger from closing.59 Illumina 54 EC March 31, 2021 Guidance ¶ 31. 55 Id. 56 Mondrall, supra note 44. 57 Am. Compl. ¶ 114. 58 Press Release, Illumina, Inc., Illumina Committed to Pursuing GRAIL Acquisition to Accelerate Access to Breakthrough Multi-Cancer Early Detection Blood Test (Mar. 30, 2021), https://www.illumina.com/company/news-center/press-releases/press-release- details.html?newsid=25956); see Am. Compl. ¶ 120. Am. Compl. ¶ 115. The action was later transferred to the Southern District of California, 59 where Illumina is headquartered, upon Illumina’s motion to transfer. Id. ¶ 115 n.145. 15 stipulated to the temporary restraining order and agreed to not close the merger until the earlier of September 20, 2021, or the court’s ruling on a preliminary injunction.60 On April 19, the EC launched a preliminary investigation under Article 7(l) of the EUMR, which automatically triggered standstill obligations, barring Illumina from closing the merger without EC clearance.61 The next day, the EC announced that it had accepted requests from Belgium, France, Greece, Iceland, the Netherlands, and Norway to assess the merger. 62 The announcing press release acknowledged that “[t]he proposed acquisition does not reach the notification thresholds set out in the [EUMR], and it was not notified in any Member State.”63 Nevertheless, relying on the recently adopted guidance, the EC explained that referral was appropriate because: [T]he combined entity could restrict access to or increase prices of next generation sequencers and reagents to the detriment of GRAIL’s rivals active in genomic cancer tests following the transaction. A referral of this transaction is appropriate because GRAIL’s competitive significance is not reflected in its turnover, as notably evidenced by the USD 7.1 billion dollar deal value. 64 60 Temporary Restraining Order, Fed. Trade Comm’n v. Illumina, No. 1:21-cv-00873 (D.D.C. Mar. 31, 2021) Dkt. No. 8; Am. Compl. ¶ 115. 61 Am. Compl. ¶ 121. 62 Defs.’ Ex. 9 (European Commission, Daily News, Mergers: Commission to assess proposed acquisition of GRAIL by Illumina, European Commission (Apr. 20, 2021), https://ec.europa.eu/commission/presscorner/detail/en/mex_21_1846 (hereinafter the “EC April 20, 2021 Press Release”)); see Am. Compl. ¶ 122. 63 Am. Compl. ¶ 122; EC April 20, 2021 Press Release. 64 Am. Compl. ¶ 122; EC April 20, 2021 Press Release. 16  The press release also stated that Illumina could not close the merger without notifying and obtaining clearance from the EC. Nine days later, Illumina filed suit in the General Court of the European Commission in Luxembourg challenging the EC’s jurisdiction over the merger. 65 On May 5, the Board met, discussed timing of the various antitrust regulatory actions, and approved hold separate commitments which would go into effect upon closing of the merger.66 Later in May, the FTC withdrew its request for a preliminary injunction, stating that, based on the EC standstill, and the FTC’s “assumption that [Illumina and GRAIL] will abide by the laws of all jurisdictions in which they operate—the FTC’s understanding is that [Illumina and GRAIL] cannot currently close this transaction.” 67 The FTC withdrew the application for a preliminary injunction action without prejudice on June 1, but continued efforts to block the merger before an Administrative Law Judge (“ALJ”).68 Illumina continued to 65 Am. Compl. ¶ 124. 66 Id. ¶¶ 125–26. 67 Pl.’s Ex Parte Application to Dismiss Compl., Fed. Trade Comm’n v. Illumina, Inc., No. 3:21-cv-00800 (S.D. Cal. 2021), Dkt. No. 120; Am. Compl. ¶ 127. 68 Am. Compl. ¶¶ 128, 130, 134. The court granted the motion to dismiss and closed the case. Clerk’s Judgment, Fed. Trade Comm’n v. Illumina, Inc., No. 3:21-cv-00800 (S.D. Cal. 2021), Dkt. No. 127. 17 negotiate with the FTC, including filing a Motion for Conference to Facilitate Settlement, which the FTC opposed. 69 The EC also continued its investigation, and on July 22, 2021, initiated “Phase II” of its investigation. 70 The EC then suspended its investigation because Illumina and GRAIL did not provide “essential information.”71 The suspension did not alter the standstill, which remained in effect.72 4. Illumina and GRAIL close the merger despite standstill obligations in the EU Throughout late July and into August, the Board met several times and heard from various legal advisors on issues related to the closing, especially regarding the antitrust review ongoing in the U.S. and EU. 73 69 Mot. for Conference at 5, In re Illumina, Inc. & GRAIL, Inc., No. 9401 (F.T.C. July 13, 2021); Compl. Counsel’s Memo. Opp’n Mot. for Conference at 3, In re Illumina, Inc. & GRAIL, Inc., No. 9401 (F.T.C. July 20, 2021); Am. Compl. ¶¶136–37. The motion was denied by the ALJ because “the parties [were] not presently engaged in negotiations for the purposes of settlement, and thus there are no settlement negotiations to supervise.” Order at 2, In re Illumina, Inc. & GRAIL, Inc., No. 9401 (F.T.C. July 21, 2021); Am. Compl. ¶ 138. 70 Am. Compl. ¶ 141. 71 Id. ¶ 150. 72 Id. 73 In the months preceding the closing, the Board expanded Illumina’s Directors and Officers (“D&O”) insurance coverage. On July 14, 2021, insurance brokerage Woodruff Sawyer presented to the Board on D&O insurance renewal. According to the presentation, Illumina management was interested in enhanced Side A coverage which would be dedicated to the merger. Id. ¶ 140. The Audit Committee approved the D&O insurance renewal on August 3, and the Board approved Illumina’s purchase of $300 million of D&O 18  On July 27, 2021, the Board met and received legal advice from Paul Hastings LLP (“Paul Hastings”) on merger antitrust reviews in the U.S. and EU.74 The Board met again on August 3 and received an update on the ongoing antitrust reviews from Dadswell, the Company’s General Counsel. 75 Dadswell also discussed “strategies; possible next steps and timing considerations.”76 The Board met again on August 13 and received an update on the merger in an “informational meeting” designed for the Board to hear from Illumina management and legal advisors. 77 At the meeting, “deSouza outlined the importance of [the merger] and the moral imperative of the Corporation to successfully complete its Merger with Grail to accelerate the benefits from Grail in the US and around the world, noting that the Board’s goal should be to do the right thing for the Corporation, for its shareholders, and for human health.”78 deSouza recommended actions to “put the Corporation in the best position insurance coverage, at an annual premium of up to $100 million. Id. ¶¶ 143, 148; Defs.’ Ex. 29 (Minutes of the meeting of the Audit Committee of the Board, dated August 4, 2021); Defs.’ Ex. 27 (Minutes of the meeting of the Audit Committee of the Board, dated August 3, 2021). 74 Am. Compl. ¶ 142. 75 Id. ¶ 146. 76 Id.; Defs.’ Ex. 22 (Minutes of the meeting of the Board, dated August 3, 2021). 77 Am. Compl. ¶ 151 (citation modified). 78 Id. ¶ 152; Defs.’ Ex. 23 (Minutes of the meeting of the Board, dated August 13, 2021). 19 to acquire Grail, including to close the transaction without final approval from the [EC], because waiting for approval would risk termination of the transaction.” 79 The Board also heard from its legal advisers. According to the meeting minutes, attorneys from Slaughter and May advised that “it was not possible [for the EC process] to be completed” before Grail could unilaterally terminate the Merger Agreement after December 20, 2021. 80 Attorneys from Paul Hastings also outlined “potential fines that could be imposed by the European Commission for closing without final clearance from the competition authorities, which could be as much as 10% of [Illumina’s] annual revenues,” and “potential mitigation factors, including the avoidance of a significant reverse breakup fee if Illumina was not able to close the transaction prior to December 20, 2021.” 81 Attorneys from Cravath discussed “the status of the FTC process and pending administrative FTC trial and likely outcome, expressing the view that . . . [Illumina] was not likely to prevail before the FTC,” but was likely to prevail on appeal to a United States Court of Appeals. And an attorney from Covington & Burling LLP (“Covington”) “advised the Board regarding potential for stockholder litigation,” outlining possible claims and outcomes. An attorney from Monckton Chambers expressed his view that Illumina 79 Am. Compl. ¶ 155; Defs.’ Ex. 23. 80 Am. Compl. ¶ 156; Defs.’ Ex. 23. 81 Am. Compl. ¶ 156; Defs.’ Ex. 23. 20 had strong arguments supporting its position that the EC did not have jurisdiction to review the merger, and that Illumina had a valid basis to seek to annul the EC’s decision to accept jurisdiction. The attorney from Slaughter and May concurred with Monckton Chambers’ presentation. The Board also heard from Woodruff Sawyer regarding the existing and proposed D&O insurance towers. The next day, the Board met again and further discussed the closing and “debated ‘the strategy and risks of closing the transaction in advance of clearance from the [EC], and the operation of the hold separate arrangements and the possible impact on the Grail business.’”82 On August 15, the Board met again and heard from management and additional legal advisers. deSouza provided an update on the merger and reiterated “management recommendations regarding the strategy to close the Grail transaction, the advice of outside advisors relating to that recommendation, the alternatives available to Illumina in the event Grail did not close, and an update on the base business plan of Illumina and a summary of the regulatory landscape.”83 The European Chair of Covington’s government policy practice informed the Board that 82 Am. Compl. ¶ 160; Defs.’ Ex. 24 (Minutes of the meeting of the Board, dated August 14, 2021). 83 Am. Compl. ¶ 161; Defs.’ Ex. 25 (Minutes of the meeting of the Board, dated August 15, 2021). 21 “closing the merger without EC approval would have ‘implications with the [EC] competition authority, but that should be able to be repaired over time.’”84 At an August 17 Board meeting, deSouza confirmed management’s recommendation to proceed with the closing, and Samad provided an update on the D&O insurance revisions. The Board resolved to close the merger and to increase the D&O insurance coverage. 85 The Board closed the merger while the EC’s standstill obligation was still in place, before Illumina’s litigation in the EU was resolved, and prior to the Outside Date of September 20, 2021, and automatic extension of December 20, 2021. After closing, “GRAIL . . . remain[ed] a separate and independent unit, pending ongoing regulatory and legal review.”86 The closing included various hold separate commitments approved by the Board, including holding GRAIL separate after the closing, disallowing any involvement from Illumina management into GRAIL’s operations, and fully funding GRAIL’s day-to-day operations (collectively, the “Hold Separate Commitments”).87 The Hold Separate Commitments obligated 84 Am. Compl. ¶ 162; Defs.’ Ex. 25. 85 Am. Compl. ¶ 163; Defs.’ Ex. 30. The Director Defendants were each in attendance at the meeting and authorized the closing and increased D&O insurance coverage. Defs.’ Ex. 30. 86 Am. Compl. ¶ 181 n.215; Defs.’ Ex. 31 (Illumina, Inc. Press Release, Illumina Acquires GRAIL to Accelerate Patient Access to Life-Saving Multi-Cancer Early-Detection Test, Illumina, Inc. (Aug. 18, 2021)). 87 See Am. Compl. ¶ 181. 22 Illumina to fund GRAIL’s R&D and to maintain GRAIL’s viability as a separate, go-forward entity. 88 These financial commitments required by the Hold Separate Commitments ultimately exceeded those agreed to in the Merger Agreement and, ultimately, cost Illumina $3.09 billion from closing through the ultimate divestment of GRAIL.89 In a press release announcing the closing, Illumina disclosed that “[r]egulators in the EU are reviewing the transaction, but a decision is projected after the deal expires. . . . [T]he [C]ompany believes that the European Commission does not have jurisdiction to review the merger . . . [and] [b]y holding GRAIL separate while proceedings are ongoing, Illumina is positioned to abide by whatever final decision is reached in these legal processes.”90 Illumina also stated, “[t]here is no legal impediment to acquiring GRAIL in the US. Illumina is committed to working through the ongoing FTC administrative process, and as always, will abide by whatever outcome is ultimately reached in the US courts.”91 The press release cited the “