Illumina chair ousted in proxy battle with Carl Icahn

Illumina shareholders have voted to replace chairman John Thompson and approved a candidate backed by Carl Icahn following a proxy fight led by the veteran activist investor.

Andrew Teno, Icahn’s nominee for the board of the world’s largest gene sequencing company, won the shareholder vote at the company’s annual meeting on Thursday, while Thompson did not have a seat.

But two other Icahn nominees failed to get enough votes to win board seats, paving the way for Illumina CEO Francis deSouza and director Robert Epstein to seek re-election.

“We appreciate the constructive shareholder feedback we received throughout the process and are committed to delivering on our plan to accelerate shareholder value,” Illumina said in a statement.

“I see this as just the first round in an ongoing battle,” said John Coffee, a professor at Columbia Law School. “The shareholders may still be able to remove the CEO. But apparently shareholders were nervous about giving Icahn as many as three seats on the board.”

Illumina shares fell nearly 11 percent to $189.71 after the vote, their lowest level this year.

“It appears that investors may have been hoping for a bigger turnaround from the embattled genome sequencing leader,” Julie Utterback, Illumina analyst at Morningstar, said of the stock selloff. The shareholder vote makes a quick spinoff of Grail unlikely, but management is “on a tighter leash.”

In a further sign of investor frustration with the company, Illumina said shareholders rejected the 2022 pay for top executives. DeSouza was paid a total of $26.7 million in 2022, nearly double the previous year’s salary. Pay proposals are non-binding in the US, but big companies rarely lose these votes.

The vote to oust Thompson, a former Microsoft chairman and director, follows Icahn’s campaign, which focused on Illumina’s “reckless decision” to close its $8 billion acquisition of cancer-testing developer Grail in 2021, against the wishes of EU and US antitrust regulators.

Icahn, who has a 1.4 percent stake in Illumina, said it was “inexplicable and inexcusable” that the Thompson-led board went ahead with the deal without making sure it received approval from EU regulators. In December, Brussels ordered Illumina to divest Grail and fined it up to $453 million for “arms jumping.”

The US Federal Trade Commission has also ordered the sale of the Illumina Grail. Illumina is appealing the rulings from EU and US regulators.

The 87-year-old investor also alleged that the board was not independent and that most of the directors were handpicked by deSouza.

Illumina’s market capitalization fell from $75 billion in August 2021, when it acquired Grail, to less than $30 billion as of Wednesday.

Illumina’s proxy battle is one of the biggest shareholder activist campaigns in recent years. Since 2012, only seven U.S. games have been voted on by companies with a market capitalization of more than $30 billion, according to analytics firm Insightia. Activist campaigns by Disney and Salesforce have come before shareholder votes this year.

Les Funtleyder, healthcare portfolio manager at E Squared Capital Management, which owns Illumina shares, said the outcome of the proxy vote will do little to reassure investors. “I hope the board got the message that investors want them out of Grail. But we still don’t know the way forward.”

One shareholder, who was not authorized to speak publicly, told the Financial Times that he had voted to replace Thompson because the Grail deal had not worked and the board had remained “deaf” to shareholders.

“They don’t seem to be able to admit their mistake, and the vote was an opportunity to send a strong message,” the shareholder said.

The Illumina vote was also a test case for shareholder rules that Icahn and other activists had fought for by the U.S. Securities and Exchange Commission, giving shareholders flexibility in choosing candidates.

Previously, shareholders were forced to vote for the company’s entire slate of candidates or its activists in contested elections. Now, shareholders can choose to support individual candidates from both camps. Only a few activists using the new “universal” voting rules went to the polls, and all in small companies.