Overview
On June 9, 2020, the UK Competition Markets Authority (CMA) served an initial enforcement order under section 72(2) of the Enterprise Act 2002 on Facebook in relation to their completed acquisition of Giphy.
The CMA has explained in a statement that the proposed investigation would explore whether the acquisition might result in “a substantial lessening of competition in any market or markets in the UK.” The UK merger system is a voluntary one, even where the transaction meets the qualification tests for merger review by the CMA. If a qualifying transaction is not notified, the CMA has the power to require parties to suspend implementation, pending a merger review.
Currently, the enforcement order prohibits any further acquisition activities from taking place whilst the probe is ongoing, effectively putting the reported $400 million deal on hold indefinitely.
With no date set on its final decision on the deal, the CMA is now inviting comments from any interested party until July 3, 2020.
Interestingly the Office of Fair Trading, the previous regulator responsible for competition enforcement in the UK, investigated a merger between Facebook and Instagram back in 2012, but the case was closed without further examination, as it was decided that the case would not “result in a substantial lessening of competition within a market or markets in the United Kingdom.”
The decision to investigate a Facebook’s acquisition now comes at an interesting time for big tech companies, as they face increased scrutiny of their market position on the online platforms from the European Commission, and a number of EU Member States.
Background to the transaction
In an announcement last month, Facebook broke the news of their multi-million dollar acquisition of Graphic Interchange Format (GIF) picture provider Giphy, with plans to integrate the feature into its photo-sharing app, Instagram. Facebook stated that around 50 per cent of Giphy’s traffic already came from its apps, half of which was from Instagram alone.
Giphy’s technology development and relationships with content creators and developers will be key points of investment for Facebook. Facebook also said that the takeover would not impact Giphy's existing deals with other partners.
In a statement on June 12, 2020, Facebook commented on the CMA’s decision to investigate the acquisition by explaining that they are “prepared to show regulators that this acquisition is positive for consumers, developers and content creators alike.”
The US antitrust authorities have not yet intimated whether they will also look into the acquisition deal and whether the review will be conducted by the Department of Justice or the Federal Trade Commission. In Australia, the ACCC has launched its own inquiry into the transaction.
Giphy has also since released a statement, in which, they said that it looks forward to reporting to the CMA that its partnership with Facebook “is a win for our users, partners and content creators.”
