Carl C. Icahn’s proxy campaign to begin changing Illumina’s direction has achieved its first success, as shareholders of the sequencing giant elected to its board an ally of the activist investor and ousted the chairman, who has ties to current CEO Francis deSouza.
Andrew J. Teno, a portfolio manager at Icahn’s investment management firm Icahn Capital since October 2020, prevailed over John W. Thompson, who had served on Illumina’s board since 2017, the last two years as chairman.
However, shareholders largely upheld the status quo by voting to reelect eight directors endorsed by Illumina, starting with deSouza and including Frances Arnold, PhD; Caroline Dorsa; Robert Epstein, MD; Scott Gottlieb, MD; Gary Guthart, PhD; Philip Schiller; and Sue Siegel.
A new chair is expected to be chosen in the coming weeks. Illumina shareholders had voted for board directors over the past month, culminating with the results being announced Thursday at the company’s annual shareholder meeting, which was held virtually.
“Illumina thanks shareholders for their continued support of the company, which remains committed to its mission of improving human health by unlocking the power of the genome,” the company said in a statement. “We appreciate the constructive shareholder feedback throughout this process and are committed to delivering on our plan to accelerate shareholder value creation. We will continue to provide transparent and effective communication as we move forward together.”
Investors, however, reacted coolly to the shareholder vote results with a stock selloff that sent Illumina shares falling 9% on Thursday, from $212.65 to $193.53. Shares inched up 1% on Friday, to $195.89.
“Investors may have been hoping for a more significant change at the embattled genomic sequencing leader,” Julie Utterback, a senior equity analyst with Morningstar who covers medical technology and service companies, wrote Friday in a research note.
Illumina responded to Teno’s election by welcoming him to the board and adding that it “look[ed] forward to productive and collaborative engagement.”
Stating their case
- Illumina has drained itself of resources through its nearly three-year effort to acquire cancer blood test developer Grail in the face of opposition from U.S. and European regulators.
- Illumina’s stock price has shrunk to the point where the company has lost some $50 billion in market capitalization—the share price times the number of outstanding shares of a public company.
- Illumina’s board nearly doubled CEO Francis deSouza’s total compensation last year, to almost $27 million, with much of that increase based on stock options.
The Grail acquisition, Teno said on “Close to the Edge,” was just one instance of Illumina failing to pull off a billion-dollar merger. He cited Illumina’s ill-fated attempt to acquire Pacific Biosciences (PacBio) for $1.2 billion, a buyout Illumina and PacBio “mutually” terminated after opposition emerged from the U.S. Federal Trade Commission on antitrust grounds.
“In terms of strategy or anything—inorganic growth, they’ve been a complete failure,” Teno said of Illumina.
By buying Grail, Teno contended, Illumina was essentially competing against its own customers, diagnostics developers who have embraced Illumina’s technologies enough to make it the dominant player in sequencing.
“We would think [what] Illumina should do is stop competing against [their] customers. Instead, go back to the days where you’re trying to come out with new sequencing platforms as quickly as you can,” Teno said. “Our real push is to get back to the core.”
Illumina has countered that it has strengthened its commitment to its core sequencing business by launching the NovaSeq X system.
Teno’s arguments were persuasive enough for proxy advisory firm Institutional Shareholder Services (ISS) to recommend his election to the board earlier this month, saying that supporting Teno over Thompson “appears to be the most direct approach to achieve the change that is warranted.”
Too disruptive
But ISS balked at supporting the ouster of deSouza or endorsing all three Icahn nominees, saying that would be too disruptive to Illumina: “If the dissident’s campaign had contained fewer unsubstantiated accusations, or if the dissident had nominated candidates with direct industry expertise, it might have been easier to conclude that the case for change was strong enough to support more dissident nominees.”
Teno was one of three allies nominated to Illumina’s board by Icahn through his Icahn Partners, and 13 affiliated entities and individuals. The other two allies were Vincent J. Intrieri, founder and CEO of VDA Capital Management, a private investment firm, and a former Icahn employee from 1998-2016; and Jesse A. Lynn, general counsel of Icahn Enterprises (IEP).
Icahn Enterprises is Icahn’s publicly-traded diversified holding company based in Sunny Isles Beach, FL, 20 miles northeast of Miami. Pharma is one of the seven primary business segments of Icahn Enterprises; the other six are investment, energy, automotive, food packaging, real estate, and home fashion.
Icahn Enterprises investors reacted more coolly than their Illumina counterparts to the shareholder election outcome, as shares dropped 14% Thursday, from $23.94 to $20.63. Icahn Enterprises shares have lost 59% of their value since May 2, the day short seller Hindenburg Research took a short position in Icahn’s investment firm—and issued a scathing report taking issue with many of its practices. Illumina has declined comment on the report—but a week later pointedly publicized Icahn Enterprises’ disclosure that the U.S. Attorney’s office for the Southern District of New York had launched a federal investigation into the company’s practices.
Icahn attacked what he called Hindenburg’s “self-serving” report, saying it was “intended solely to generate profits on Hindenburg’s short position at the expense of IEP’s [Icahn Enterprises’] long-term unitholders. We stand by our public disclosures and we believe that IEP’s performance will speak for itself over the long term as it always has.”
Nominees’ vision
Icahn earlier this month laid out a vision for what his nominees would expect to carry out as board members if elected. In addition to ending the Grail acquisition, they committed to maximizing the growth of the core sequencing business, suggested that Illumina discount consumables to new biotech companies in exchange for a portion of future royalties, and replace deSouza as CEO.
However, Intreri and Teno were both endorsed for Illumina’s board by proxy advisor Glass Lewis, which criticized what it called the “costly, distracting, value-crimping millstone” Illumina saddled itself with by pursuing the Grail acquisition—and doing so without approval from regulators, an action Glass Lewis termed a “questionable determination.”
The proxy adviser also asserted that Illumina investors should hold the current management directly accountable for the several risks and uncertainties surrounding the company’s “questionable determination” to close the Grail deal, without regulatory approval.
Before joining Icahn’s investment firm, Teno worked at Fir Tree Partners, a New York-based private investment firm that invests worldwide in public and private companies, real estate, and sovereign debt, from 2011 to April 2020. Earlier, he worked at Crestview Partners from 2009 to 2011 as an associate in their private equity business, and at Gleacher Partners, a boutique mergers and acquisitions firm, from 2007 to 2009.
Teno has served as a director on the boards of Crown Holdings, a global supplier of packaging products, since December 2022; FirstEnergy, an electric utility, since March 2021; and Southwest Gas Holdings, an entity that purchases, distributes, and transports natural gas and provides utility infrastructure services across North America, since May 2022.
In announcing the shareholder election results, Illumina extensively thanked Thompson for his board service: “His deep executive experience and business knowledge were greatly valued during his tenure.
“His depth and breadth of knowledge in technology and across a number of private and public sectors, as well as his financial expertise, greatly contributed to the Board’s strategic leadership of the company,” Illumina added.
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