Facebook (now known as Meta) acquired Giphy for $400m in May 2021.
The deal was closed without the consent of the Competition and Markets Authority (CMA), the body that enforces UK merger control rules. The UK law has no mandatory pre-merger filing requirement. However, companies that enter into a merger qualifying for investigation risk the CMA stepping in to investigate the merger for up to four months post-closing or when they become aware of the transaction. The trigger thresholds for such an investigation are that the target has UK turnover in excess of £70m, or the transaction creates or enhances a share of supply over 25%.
Following the acquisition, the CMA approached Facebook (as it then was) in June and opened an investigation into the transaction. One of the first steps taken by the CMA was to issue an Interim Enforcement Order which sought to prevent the Giphy business being integrated into Facebook prior to the conclusion of the CMA's investigation. It also required Facebook to provide regular reports on the activity of Giphy and the steps to ensure the separation (the Reporting Requirements).
Facebook did not comply with Reporting Requirements. The CMA repeatedly wrote to Facebook concerning its failure to comply with the Reporting Requirements, and, as we reported previously, in October 2021 ultimately imposed a fine of £50.5m on Facebook (the first time a fine for the breach of an Initial Enforcement Order has been issued). Facebook was also fined £500,000 for changing its Chief Compliance Officer without informing the CMA.
Following its investigation under the Enterprise Act, the CMA has now ordered Meta (as it is now known) to sell Giphy.
The basis for this decision is that, in the CMA's view, Meta's acquisition of Giphy would reduce competition between social media platforms and remove Giphy as a potential challenger in the display advertising market. Meta already enjoys nearly 50% of the UK's £7bn display advertising market. The CMA also considers that Meta's ownership of Giphy would allow it to limit or block other social media platforms from accessing Giphy. A further concern is that Meta could require rival social media platforms, such as TikTok, Twitter and Snapchat, to provide user data in exchange for access to Giphy. Competition authorities globally have become increasingly concerned about the market power that data can give social media platforms.
Meta has said it is reviewing the decision and considering all options, including an appeal to the Competition Appeal Tribunal.
The decision demonstrates that the CMA is increasingly prepared to use its powers to regulate the activities of the Big Tech companies, in particular where new entrants are acquired before they can establish themselves as effective competitors. The CMA's recently established Digital Markets Unit is also reviewing behaviour by the Big Tech companies more generally and may make further recommendations for actions to control their market power. The decision also demonstrates the dangers of closing a transaction without having received prior clearance from the CMA. Presumably, Meta's desire for a quickly concluded deal was considered to outweigh the risks of closing without clearance having been received.