Dive Brief:
- Illumina shareholders should withhold support for board chair John Thompson and back activist investor Carl Icahn’s nominee Andrew Teno for a seat on the board, proxy advisory firm Institutional Shareholder Services said Friday.
- Illumina defended Thompson in a response to the ISS report, saying his deep experience has provided invaluable insight and leadership to the board.
- The DNA-sequencing company pointed to a disclosure last week in Icahn Enterprises’ 10-Q filing that the U.S. attorney's office for the Southern District of New York is investigating the company's practices.
Dive Insight:
Illumina and Icahn have been locked in a proxy fight over the company’s acquisition of liquid biopsy developer Grail, which the DNA sequencer purchased without the consent of U.S. and European antitrust authorities. Icahn wants Illumina to divest Grail. Illumina has said it will do so if it loses its appeals with the regulators.
ISS, in its report, called the relationship between Thompson and CEO Francis deSouza “troubling,” noting it dates back to at least 2006. “Thompson's addition to the board a year after deSouza became CEO raises questions about management accountability,” the advisory firm said.
The agreement to acquire Grail, said ISS, “potentially raises concerns about the board's view of the importance of shareholder input,” given that the acquisition was not subject to shareholder approval. “However, the agreement to acquire Grail is defensible in that it was expected to diversify revenue and expand ILMN's business into a new diagnostic area,” it wrote.
Illumina on Monday sent a letter to shareholders highlighting the U.S. attorney’s investigation disclosed by Icahn. According to the filing from Icahn Enterprises, the U.S. attorney’s office for the Southern District of New York contacted the company on May 3 seeking information related to its “corporate governance, capitalization, securities offerings, dividends, valuation, marketing materials, due diligence and other materials.”
Icahn Enterprises said it is cooperating with the request and providing documents in response.
“The U.S. Attorney’s office has not made any claims or allegations against us or Mr. Icahn with respect to the foregoing inquiry. We believe that we maintain a strong compliance program,” the firm said in its filing.
Icahn has urged Illumina shareholders to vote to dump three of the company’s board members -- deSouza, Thompson and physician Robert Epstein -- and proposed three candidates of his own: former Icahn Group employee Vincent Intrieri and current employees Jesse Lynn, general counsel, and Teno, a portfolio manager.
Illumina repeated its call for shareholders to vote for all of its nine nominees at its May 25 annual meeting, to be held virtually. It noted that Thompson has led high-growth companies for more than four decades.
“ISS’s recommendation that shareholders reject two of Icahn’s associates is recognition that Illumina has the right skill sets and experiences on its Board to advance the company’s strategic goals for value creation,” the company said.
The ISS recommendation follows a report from proxy firm Glass Lewis that advised Illumina shareholders to withhold votes from both deSouza and Thompson because of the Grail transaction, performance concerns and limited accountability.
TD Cowen analyst Dan Brennan, in a note to clients Monday, said success for Icahn increases the certainty of a Grail exit and suggests potential for a management change.
Updates with further details of ISS recommendation.
