Carl C. Icahn Issues Open Letter to Shareholders of Illumina, Inc.

$ILMN

Dear Fellow Illumina Shareholders:

On April 20, 2023, Illumina filed its definitive proxy statement with the SEC, in which the company cryptically disclosed for the first time that its Governance Committee expects that “it will propose the appointment of two new directors after the 2023 annual meeting”. This action demonstrates a blatant attempt to disenfranchise Illumina shareholders – in the midst of a proxy contest – by packing the board with two additional handpicked directors. In typical Illumina fashion, the board did not even have the decency to highlight this vote rigging scheme in a Form 8-K filing, choosing instead to include a brief mention on page 14 of the company’s proxy statement, likely in the hopes that the move would go unnoticed until after the election. We question why Illumina’s board decided not to add these two unnamed individuals to the company’s slate so that shareholders would have an opportunity to choose for themselves at the upcoming annual meeting whether they wished to have them added to the board.

Because the company followed its usual pattern of not providing any explanation whatsoever for this highly unusual action, we must speculate as to the possible motives. One thing that occurs to us is that, as the incumbent directors are currently out meeting with the same shareholders with whom we have been speaking, the high likelihood of our success in the proxy contest is beginning to dawn on them. Therefore, these management-friendly directors are taking the highly suspicious step of attempting to ensure in advance that the voices of shareholder representatives in the boardroom will be diluted by two more management-friendly individuals.

Another alternative theory is that Illumina’s incumbent directors, fearing the various lawsuits that we believe are inevitable following the $50 billion of value destruction they caused, decided that it would be in their personal best interests to add new members to the board who would appear to be “independent” but who could be trusted to “do the right thing” if asked to investigate (i.e., whitewash) the unclean actions of the incumbent directors. To elaborate, we believe, based on our decades of experience profiting by entering situations after the stock market valuations of good companies have plummeted due to the negligence of incumbent boards and management teams, that Illumina is a prime target for plaintiff law firms experienced in bringing derivative lawsuits (especially because of the potentially billions of dollars of damages that could be recovered for shareholders and the very juicy extra insurance coverage that the incumbent directors bought themselves with our money). A derivative lawsuit is a legal action filed by a shareholder, on behalf of a company, typically to address damage done to the company by executives or board members. Normally, directors are responsible for pursuing legal action when a company has come to harm. However, if the board has failed to address the wrongful action (as is the case here), shareholders can step in and file a derivative lawsuit. In such situations, boards will often designate a committee of directors to investigate the alleged wrongdoing, and this committee must obviously be populated only by directors who did not take part in the alleged bad acts. In the case of Illumina, there are

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likely no such “innocent” directors presently on the board – as all of the current directors were already on the board when the disastrous and value-destroying decision to close the GRAIL transaction over explicit regulatory prohibitions was made (although, based on the fact that Illumina, unlike most other similarly situated companies, has never stated publicly that the GRAIL transaction was unanimously approved, market speculation is that there could have been a handful of directors who voted against the deal). Therefore, it is very possible that the incumbent directors have craftily arranged to have these two new unnamed (but likely management-friendly) individuals join the board, without shareholder approval, in order to have them serve on such a committee and guarantee a favorable outcome for the incumbents. Further, we suspect that Illumina’s lawyers have explained to the incumbent directors that, if our nominees are elected at the annual meeting, they too would likely end up serving on this committee (as obviously they are independent of management and took no part in the value-destructive activities). As such, the diabolical plan of the incumbent directors seems likely to have been to sneak these two individuals onto the board with the express purpose of having them vitiate the investigatory process by blunting whatever influence our nominees might have had on this committee.

No matter the motivation of the incumbent directors (we will never know because they will never say), let the utter insanity of this perversion of corporate governance sink in for a moment. If you – the shareholders – determine that it would be in the best interest of your investment in Illumina to vote for our highly qualified nominees to join the board, the incumbents are in effect telling you to pound sand. The incumbents are guaranteeing in advance that, even if our nominees are seated in a valid election, their voices will be muted by two more management-friendly individuals that will be jammed onto the board against your will.

Adding insult to injury, Illumina’s proxy statement contains another buried nugget of repugnance for those few brave souls who actually make it to pages 58 and 60 of the filing. There you will find that CEO Francis deSouza’s compensation targets have been set by his coterie of crony directors to include only the results of “Core Illumina” and exclude the impact of GRAIL’s operating performance. Said another way, CEO Francis deSouza gets to use the shareholder’s money – our money – for free but he is only willing to be compensated on the results of Core Illumina. Why should Francis deSouza be compensated solely based on the performance of Core Illumina and be allowed to stick shareholders with the absurdly large GRAIL operating losses (~$800 million in 2023 alone)? Didn’t Francis deSouza make the decision to close the acquisition of GRAIL over the explicit prohibition of EU regulators (without giving shareholders a say in the matter)? Isn’t he the one who is driving the strategy of filing never-ending futile appeals in the quixotic hope of one day owning GRAIL? Why is CEO Francis deSouza being held to one standard when shareholders are subject to another? Furthermore, where is the accountability and how can the board of directors allow this situation to go unchecked?

AN EXISTENTIAL THREAT TO ILLUMINA;

THE PATH FORWARD REGARDING GRAIL

We fear that, if the incumbent directors are left to determine the path forward on GRAIL, this debacle will continue for years! Illumina has recently modified its description of the path forward regarding GRAIL and now says: “If Illumina does not prevail in this [US] appeal or the ECJ

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jurisdictional appeal, the company expects to move expeditiously to divest GRAIL in a manner that serves the best interests of Illumina’s shareholders.” We believe there is no good outcome here. If Illumina wins the jurisdictional appeal, the company will be saddled with years of massive operating losses, an unproven technology and no obvious synergies between the two businesses. If Illumina loses the jurisdictional appeal, CEO Francis deSouza is once again completely obfuscating the almost existential risks to Illumina that will occur. He would have you believe that the divestment process would take only months. That is the understatement of the century. The EU has the power to issue a number of almost impossible demands for Illumina to satisfy, all of which the company is currently appealing. These demands include, among many others, that GRAIL must be as viable and competitive after the divestment as it was before Illumina's acquisition. How can the incumbent directors truly believe that the divestment process can be completed within months if they continue to appeal the many requirements and orders that the EU has demanded. For example, we believe it is possible that, if Illumina appeals the Final Divestment Order fully, it could take three or four years until the situation is resolved!

Not only will the divestiture timeline be materially longer than CEO Francis deSouza would have you believe, but the value for shareholders will be materially worse as well. We believe that by fighting US and EC regulators tooth and nail every step of the way, Illumina will be unable to divest GRAIL in a shareholder friendly manner. Perhaps the EC will decide that GRAIL needs to have 3, 4 or 5 years of cash upon a spin-off (higher than it likely needs). Perhaps the EC will decide that GRAIL needs to be divested to a strategic acquiror at a preposterously low valuation compared to the $10 billion acquisition price, which will result in Illumina shareholders losing their ability to participate in GRAIL’s future.

We believe the best solution to this mess would be to approach the EU in a constructive manner, drop the appeals process and negotiate for a swift separation from GRAIL. Our three board members have the skillset and willingness needed to pull Illumina out of the quicksand and avoid years of losses, distractions and delays. We have a long history of helping companies navigate complex situations, including Motorola, Conduent, eBay, FirstEnergy and Occidental Petroleum, to name just a few recent examples.

NO FAIRNESS OPINION

Let us not forget that the incumbent directors are the same individuals who chose voluntarily not to demand an opinion from a reputable financial advisor demonstrating that the GRAIL transaction was fair to Illumina’s shareholders from a financial point of view. Either that or they did attempt to obtain a fairness opinion but could not find one self-respecting investment banking firm willing to risk their malpractice insurance by stating that the fundamentally unfair deal was fair. Upon learning that it would be impossible to demonstrate objectively to Illumina’s shareholders that the GRAIL transaction was fair to them from a financial point of view, what did the incumbent directors do? Did they ask any questions of management? Did they demand that the deal be restructured in a manner that would permit the rendering of a fairness opinion? Did they refuse to approve the deal? The answer is that they did none of those things. Instead, they selfishly demanded and received an extra layer of insurance protection to cover their own behinds and then they approved the deal!

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The sickening list of egregious fiduciary failures committed by Illumina’s board is a shining example of why checks and balances are so crucial to a properly governed company (see the Appendix at the end of this letter for an even longer list of negligent acts, which we believe demonstrates a complete failure of the incumbent directors to discharge the duties of care and loyalty that they owe to Illumina and its shareholders). In companies with appropriately constituted boards of independent directors with significant ownership representation – as opposed to this collection of “yes men” and “yes women” that appear to kowtow to every destructive impulse articulated by CEO Francis deSouza – none of these actions, each one a travesty in and of itself, should or would ever occur.

We feel strongly that our three highly qualified nominees are particularly suited because of their experience (and particularly because of their status as completely independent of CEO Francis deSouza) to help keep Illumina from sinking further into the quicksand. When the inevitable order comes down from the US and/or EU stating that Illumina must divest GRAIL, you will want us on that wall; you will need us on that wall to protect ALL shareholders from future value destruction ($50 billion is more than enough!). We look forward to meeting with you over the coming weeks. Thank you for your continued support.

 Sincerely yours,

   Carl C. Icahn

Source:

https://www.sec.gov/Archives/edgar/data/921669/000153949723000716/n2779-x126_dfan14a.htm