Gene sequencing company Illumina said on Sunday it will divest cancer diagnostic test maker Grail after the companies battled both U.S. and European antitrust enforcers for more than two years and faced fierce opposition from activist investor Carl Icahn.

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The divestiture will be executed through a third-party sale or capital markets transaction, San Diego-based Illumina said in a statement, adding that it would finalize the terms by the second quarter of 2024.

Grail will continue to be held separately with committed funding from Illumina for the company's business through the divestment process, the former said in a separate statement.

Grail, valued at $7.1 billion under Illumina's deal, is seeking to market a blood test that can diagnose many kinds of cancer, known as a liquid biopsy.

Illumina had spun off Grail in 2016 but retained a 12 per cent stake. It reacquired Grail in 2021 despite competition concerns.

A U.S. appeals court on Friday ordered the Federal Trade Commission (FTC) to conduct a new review of Illumina’s purchase of Grail, saying the agency had applied the wrong legal standard in its arguments. But the court said the FTC had substantial evidence to show the deal would lessen competition and opened the door to the regulator pursuing a new legal strategy to block the deal.

Illumina had decided not to pursue further appeals of the Fifth Circuit's decision, it said.

The FTC was concerned that Illumina, the dominant provider of DNA sequencing of tumours and cancer cells that help match patients with treatments most likely to benefit them, might raise prices or refuse to sell to Grail's test rivals.

Europe had proposed measures for Illumina to unwind its acquisition of Grail.

In July, Illumina was fined a record 432 million euros ($471 million) by the European Union for closing its takeover of Grail before securing EU antitrust approval.

Illumina had said in October it would divest Grail in 12 months, according to the terms of the European Commission's order, if the company does not win its challenge in court.

Last week, Illumina argued that it does no business in Europe and therefore the EU competition enforcer has no jurisdiction.

Illumina's acquisition of Grail also came under pressure from investors, including billionaire Icahn, who led a successful board challenge in May. Icahn in October sued Illumina, accusing the company of breaching its fiduciary duties over the Grail deal.

Illumina's stock price has tumbled more than 37 per cent so far this year, and the board replaced the CEO soon after Icahn won one board seat.

Icahn did not immediately respond to Reuters request for comment.