Business

➚ BUY: Shareholders. Stocks shrugged off a banking crisis and stubborn inflation to end the first quarter up 7%. The tech-heavy Nasdaq 100 index is back in bull-market territory for the first time in three years.

➘ SELL: Stakeholders. Silicon Valley Bank’s collapse puts in jeopardy the $11.2 billion in neighborhood benefits the company had pledged. It’s unclear whether First Citizens, which bought most of the failed bank last week, will honor its commitments. And BlackRock CEO Larry Fink’s annual letter to the business community was noticeably lighter on ESG topics as the political heat ratchets up.

The number of companies that went public through a SPAC and have filed for bankruptcy since 2021, after Sunday’s Chapter 11 filing by e-commerce company Boxed, according to Axios. The hangover from 2021’s euphoria continues apace.

A big test for Biden’s antitrust cops

THE NEWS

Genetic-sequencing company Illumina plans to appeal a U.S. regulatory order to unwind its 2021 takeover of a cancer-test developer, setting up a high-stakes court fight with implications for antitrust cops, patients, and corporate dealmaking.

Reversing an administrative law judge ruling, the Federal Trade Commission said yesterday that Illumina’s $7.1 billion purchase of Grail, which screens snippets of genetic code for early warnings of cancer, would stifle innovation. Regulators worry that Illumina might make its machines exclusive to Grail, whose tests run on them, strangling any potential upstart competitors.

Illumina has made a binding promise that any startups could use its machines at the same prices and the same time as Grail. That failed to satisfy the FTC, which under Chair Lina Khan has been aggressively swatting down corporate mergers.

The uncertainty has weighed on Illumina’s stock price, which is down by 37% over the past year, trailing peers like Bio-Rad and Thermo Fisher. And it has given activist investor Carl Icahn, who is waging a fight for board seats, more ammunition in his campaign.

LIZ’S VIEW

There’s a reason most corporate mergers wait until the government signs off.

When Illumina closed the deal, it knew that regulators didn’t like it. The FTC had already sued in federal court to block the transaction. European antitrust officials had signaled they would block it (and later did).

For technical reasons, delaying would have restarted a separate FTC clock and added time and costs. But fair or not, the legal deck in merger challenges is stacked in favor of regulators, and Illumina’s decision to plow ahead has proven to be a costly miscalculation. If ordered to unwind the deal, Illumina would be a forced seller in a tough market, and could face up to $458 million in fines in Europe for getting ahead of competition approvals there.

The whole affair has handed fresh ammunition to Icahn, who has accused Illumina of “brazenly thumb[ing] their noses” at regulators and throwing good money after bad to defend the deal. He also seized on a nearly 90% pay bump for Illumina’s CEO, which was disclosed last week in an almost comical bout of bad timing.

While not known for his deep technical analysis, the octogenarian investor is good at reading a room. The albatross of the Grail deal has been a sore spot for Illumina shareholders for a while now.

ROOM FOR DISAGREEMENT

Illumina already beat the government once, and there’s reason to believe it might do so again, avoiding a costly and embarrassing unwind of an acquisition on which it had pinned its future. It can choose its appeals court, and could find sympathetic ears in the Fifth Circuit, which has become the preferred venue for critics of the Biden administration.

“The Commission’s theory is totally speculative: there are no such rivals, and there won’t be for years,” Joshua Wright, a former Republican FTC commissioner who now teaches at George Mason University, wrote in an op-ed for Semafor. (You can read the full piece below.)

Antitrust law assumes that companies are economic animals, driven more or less solely by a desire to make money. The argument here assumes that Illumina wouldn’t have an incentive to cut off Grail rivals because it would ignore a huge source of potential revenue — namely, licensing its technology to others willing to pay for it.

It’s similar to the argument the FTC is making against the sale of video-game maker Activision to Microsoft, which regulators worry would take Activision’s most popular games off of a competing console, Sony’s PlayStation. But PlayStation accounted for 15% of Activision’s sales over the past three years, more than $1 billion a year, according to securities filings. It’s hard to imagine a company turning its back on that kind of money.

NOTABLE

• Carl Icahn’s blistering critique of Illumina’s executives and board.
• FTC ex-Commissioner Christine Wilson, an outspoken critic of Chair Lina Khan’s merger crackdown whose resignation in protest was effective last week, supported the decision to block the Grail deal. She explains her reasons here.

After falling for six months, U.S. home prices ticked back up in February when mortgage rates eased. Prices are now just 2.6% below their peak last June, which doesn’t give the Federal Reserve much to show for its fight.

The FTC is wrong about Illumina

Joshua Wright is a professor at Antonin Scalia Law School at George Mason University, executive director of the Global Antitrust Institute at Scalia Law School, and a former Republican FTC commissioner.

As the FTC’s own administrative courts ruled last year, the Illumina/Grail deal is a classic example of a vertical merger with obvious economic and consumer benefits — the kind of deal that ordinarily would have been approved by prior administrations from both parties.

Grail and Illumina do not compete. Grail has developed a novel cancer detection blood test. Illumina is a much larger company that provides inputs into Grail’s tests. To bring its blood test to market more quickly, in higher quantities, and at lower cost to patients, Grail needs manufacturing, operations, and supply chain efficiencies, as well as experience working with regulators like the FDA — all things Illumina can and will provide if the companies are allowed to merge.

The FTC’s theory of harm is that, sometime in the future, Illumina will be able to disadvantage potential rivals who are developing tests that compete with Grail because these rivals might also need Illumina’s devices to perform their tests, and Illumina is the only provider of the devices.

The Commission’s theory is totally speculative: there are no such rivals, and there won’t be for years. Second, even if these rivals did exist now (or in the reasonably foreseeable future), Illumina has already offered a long-term agreement to allow other oncology companies access to Illumina’s technology on the same terms as Grail.

There is now no hope that the FTC itself will come to its senses and understand that bringing life-saving cancer screenings to market faster and in higher quantities is more important than this administration’s overly simplistic belief that most mergers are bad. All hope now lies with the Court of Appeals.

That’s all, volks: Credit Suisse’s final annual meeting was a cross between a wake and a Congressional hearing, with executives apologizing for the 167-year-old bank’s collapse and shareholders having none of it. The bank was sold to longtime rival UBS last month but is being sued by investors and bondholders, and Swiss prosecutors are probing the shotgun wedding. Expect more fireworks Wednesday at the annual meeting for UBS.

“This wasn’t the finest hour for many players.”

JPMorgan CEO Jamie Dimon on the regional banking crisis in his annual letter this morning. He said the risks of rising interest rates were plain to see and financial stress tests — which, as we’ve noted in the past, assume falling interest rates, not the rising ones that are hammered mid-sized banks — need to be more forward-looking and creative.

The U.S. dollar has been the world’s reserve currency since 1944, allowing it to borrow at lower costs, giving teeth to its sanctions abroad, and projecting a soft power abroad. Global decoupling, spurred by China’s saber-rattling and Russia’s war, are leading experts to ask whether this is the beginning of the end of the dollar’s unchallenged reign.

Yes, writes FT columnist and CNN economic analyst Rana Foroohar, who foresees a “bipolar global financial system — one based on the dollar, the other on the renminbi.”

No, says economist Noah Smith. “To shift the financial system away from [the dollar and euro] would be an absolutely monumental undertaking,” he wrote this week. “And none of the candidates to replace the current system really make sense.”

No such thing as bad press: Shares of Digital World Acquisition, the SPAC that is trying to buy Donald Trump’s social-media business, are up 15% since a grand jury voted last week to indict the former president on charges stemming from hush money allegedly paid to a porn star. Rolling Stone reports that Trump’s 2024 campaign is considering selling merchandise with his mugshot, which one former aide confidently declared would be the “most manly, most masculine, most handsome mug shot.”

If you’re liking Semafor Business, please share with family, friends, bosses, and juniors. And we want to hear from you — what we got right and wrong, and what we should cover next. You can reply to this email.

See you Thursday.

Want more Semafor? Explore all our newsletters at semafor.com/newsletters

— Liz and Bradley