Carl C. Icahn Issues Open Letter to Shareholders of Illumina, Inc.
$ILMN
Dear Fellow Illumina Shareholders:
President Abraham Lincoln famously said, “You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.” Based on his recent press tour, which saw him attempting – desperately, hilariously and, most of all, unsuccessfully – to spin the company’s recently released, and decidedly mediocre, quarterly results, Illumina CEO Francis deSouza seems to believe that he can fool all of the people all of the time. But the market steadfastly refuses to be fooled for long by charlatans. The more Mr. deSouza spoke, the lower Illumina’s shares traded, clearly signaling dissatisfaction with the earnings report and dissatisfaction with Mr. deSouza’s transparent attempt to put lipstick on a pig.
To combat lower revenues and dwindling margins, Illumina announced a series of vague cost cutting plans, with the promise of attaining “Core Illumina” adjusted operating margins of 25% in 2024 and 27% in 2025 – as if achieving those less than modest goals would be a success! Describing this underwhelming “plan,” Mr. deSouza stated: “We’re looking at increasing our operating margins. Historically, we’ve operated in the range of 25-30% in terms of our operating margins. And this year we’re at 22%…and so what we’re committing to is bringing us back to 25% operating margins next year and then 27% the year after.” Listening to Mr. deSouza talk about the very disappointing quarterly results and his extraordinarily unambitious plan to limp back to extremely middling margin targets (which will take years to realize, if they are achieved at all), those not skilled in deciphering doublespeak might actually get the impression that Illumina was doing well! “We’re really excited about the way the year is starting,” gushed Mr. deSouza, adding: “On the one hand, we’re seeing very strong demand…and on the other hand, we’ve seen our manufacturing ramp really nicely…so really our operations have done really well.”
Further, Mr. deSouza then proceeded to tout the merits of the objectively disastrous GRAIL acquisition – which has shaved billions off of Illumina’s market value, subjected the company to up to $458 million in potential fines, obligated the company to fund GRAIL’s operating losses (including ~$800 million in 2023 alone) without realizing any synergies whatsoever from the combination, and set Illumina up for a mammoth tax bill when the company is forced by regulators to divest GRAIL. Mr. deSouza actually said on national television: “The reason we think it makes sense at Illumina is that we can accelerate bringing this test to more people, more quicky, more affordably than Grail can do on their own.” However, what Mr. deSouza failed to tell the investing public is that the Federal Trade Commission, when issuing its recent opinion and order requiring Illumina to divest GRAIL, actually found that the transaction would diminish innovation in the U.S. market for life-saving cancer tests while increasing prices and decreasing choice and quality of tests, stating: “[Illumina has] failed to substantiate that this acquisition is likely to yield merger-specific acceleration efficiencies that save lives. Rather than rely on [Illumina’s] self-serving and ultimately vague and unsupported projections of acceleration, we believe the course that Congress clearly enunciated in the antitrust laws is to let competition spur innovation among [multi-cancer early detection] test providers and thereby save lives.”
CUI BONO?
Additionally, we read an interesting piece recently on Illumina, entitled “Malignant Governance,” which asks the question that has been on the mind of virtually every long term shareholder with whom we have spoken: “How much money did Illumina insiders (past and present) make from splitting-off and subsequently re-acquiring Grail?” We have no idea if the allegations are true. However, based on what we do know of the past actions and lack of transparency exhibited by Illumina CEO Francis deSouza and the incumbent directors, we would not be surprised at all if some or all of the assertions turned out to be accurate. We therefore implore the board to bring in an outside – and demonstrably independent – law firm and forensic accounting team to investigate and address these questions publicly, with enough time prior to the upcoming annual meeting to allow shareholders to take the results into account when casting their votes for directors. We believe that an unbiased investigation into these murky issues is necessary and appropriate, given the fact that the director election will in effect be a referendum on the entire GRAIL fiasco. Unfortunately, we believe that we will see pigs fly before we see such an investigation conducted by this board.
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. 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/921669/000153949723000919/exh-1.htm