ISS Recommends That Illumina Shareholders Vote Against Chairman John Thompson And For Icahn Nominee Andrew Teno

$ILMN

Dear Fellow Illumina Shareholders:

Last Friday, leading proxy advisory service Institutional Shareholder Services, Inc. (‘ISS”) recommended that Illumina shareholders vote AGAINST sitting Chairman John Thompson and FOR Icahn Nominee Andrew Teno. Combining the ISS and Glass Lewis recommendations makes the vote count:

   • Icahn Nominee Andrew Teno:2•Icahn Nominee Vincent Intrieri:1• Illumina CEO Francis deSouza:1•Illumina Chairman John Thompson:0

It is highly unusual, but in this case absolutely warranted, that the proxy advisory services recommend removing a sitting Chairman and CEO. We note that the market reaction to the two recommendations differed substantially. When Glass Lewis recommended the removal of both Chairman John Thompson and incumbent CEO Francis deSouza, Illumina’s share price traded up 8% on the day. Contrast that to Illumina’s share price dropping as much as 3% today after ISS’ recommendation to remove just Chairman John Thompson. That indicates to us that shareholders clearly want more change! We would also remind shareholders that when our engagement was first made public, Illumina’s share price increased 17% on the day. Although we believe that ISS should have endorsed more of our nominees, we believe ISS understands the need for change given the following detailed quotes in its report.

“The unquantified nature of the potential upside of retaining GRAIL, the continuing expense of the status quo, the longstanding relationship between the CEO and Chairman, and questions about insufficient management accountability lead to a conclusion that the dissident has made a case that change is warranted to enhance the shareholder representation in the boardroom and bolster the board’s credibility.”

“When compared with a peer group of highly correlated genomics and life sciences companies, ILMN’s TSR underperformed by a substantial amount in each time period.”

“A far more troubling aspect of governance risk is the well documented relationship between CEO deSouza and Chairman Thompson, which dates back to at least 2006.”

“[C]ertain decisions by ILMN – whether to reacquire GRAIL, close the deal over regulatory objections, or compensate management exceptionally generously in the midst of such uncertainty – have clearly given rise to shareholder frustration.”

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“The decision to close the acquisition in August 2021, over an ongoing antitrust investigation from the European Union, is unprecedented.”

“[W]hile ILMN originally guided to GRAIL revenue of $70 to $90 million in 2022, GRAIL missed guidance by 31%, ultimately delivering $55 million of revenue.”

“Another key concern raised by the dissident (and seemingly shared by certain investors) is the extent to which the GRAIL situation has distracted management from the core business. ILMN’s total shareholder return has substantially underperformed the median of a peer group of highly correlated pure-play genomics companies and category-leading life science players. The GRAIL acquisition has demolished the company’s profitability and muted the effects of NovaSeqX’s recent successful launch. The dissident raises questions about directors’ respect for shareholder input and management accountability that remain unsatisfactorily addressed. And while the costs of the GRAIL acquisition continue to accrue, the potential benefits of integration have not been quantified by the board, leaving shareholders unable to understand the board’s view of the potential return on this investment.”

“Unfortunately, the board’s credibility with shareholders has been undercut by management compensation that is not aligned with performance and a longstanding relationship between the CEO and Chairman, which taken together imply that the board has a problem holding management accountable. It is imperative to add unquestionable independence from management to the board as a quick path to bolster the board’s credibility.”

We encourage all shareholders to think about the numerous questionable decisions that the incumbent board of directors, including Chairman John Thompson and CEO Francis deSouza, have promoted at our once great company. The list is extremely long but includes: (1) closing the highly questionable GRAIL transaction against explicit regulatory prohibitions; (2) directors requiring that enhanced insurance protections be purchased for them prior to making the unprecedented decision to acquire GRAIL over regulatory approval; (3) fighting two of the most powerful antitrust regulatory agencies tooth and nail; (4) failure to take appropriate steps – including retaining a truly independent investment advisor and obtaining a fairness opinion – to protect Illumina shareholders given the complex and intertwined relationship between Illumina and GRAIL; (5) rewarding the CEO with an 87% increase in compensation to $27 million despite $50 billion of value destruction; (6) declining revenue growth and profitability; and (7) an inability to admit simple truths, including that CEO Francis deSouza has a long-standing relationship with Chairman John Thompson.

The need for change is clear. We encourage all shareholders to vote FOR the three highly qualified Icahn Nominees – Andrew Teno, Vincent Intrieri and Jesse Lynn.

Sincerely yours,

Carl C. Icahn

Source:

https://www.sec.gov/Archives/edgar/data/921669/000153949723000923/exh-1.htm