The UK Competition and Markets Authority (CMA) has reissued an order requiring Meta Platforms Inc. (Meta), owner of Facebook, highlight the GIF (Graphics Interchange Format) platform Giphy Inc. (giphy). The decision follows Meta’s appeal against CMA’s 2020 asset divestment order and resulted in the cancellation of a $315 million takeover deal. Given that Giphy sales in the UK were nil, this case is a stark reminder to deal makers that the CMA has broad powers to review deals and enforce global remedies even in deals between foreign companies, especially when the goal is an innovative starting point. Develop or hold innovative technologies.
Meta originally acquired Giphy in May 2020 for approximately $315 million. It’s easy for Meta to add the GIF platform to Meta’s portfolio, which already includes WhatsApp, Instagram, and Facebook. As Giphy had no UK revenue, Meta decided to close the deal without first informing the CMA of the review.
However, the deal is on the CMA radar. The CMA claimed jurisdiction based on a broad interpretation of its testing share of the supply, and in June 2020 the CMA issued an Initial Executive Order (IEO) barring Meta from further integrating Giphy pending CMA consideration. However, Meta has largely integrated Giphy into Meta.2.
On November 30, 2021, after an 18-month investigation and a record £50.5m IEO violation fine, the CMA banned the deal and ordered Meta to spin off Giphy. 3
Meta’s main argument in defense of the acquisition to the CMA was that Giphy was losing money and was struggling to fund its operations, and that Meta would be investing to make Giphy a competitive force. The CMA rejected this, countering that the merger was anti-competitive, based primarily on two harm theories:
Meta has filed an appeal against the CMA’s 2021 asset sale ruling with the UK Competition Court’s Competition Court of Appeal (CAT) on the grounds, among other things, that the CMA had effectively fabricated a potential market in which it found Meta and Giphy competed (or will compete)). argues that the CMA cannot be allowed to take on future markets without current market activity to rely on to prevent current consolidation.
However, CAT largely agreed with the CMA and ruled against the CMA on only one of Meta’s six grounds of appeal (a procedural ground relating to the sharing of confidential information by third parties). In light of this, the CMA revised its decision but arrived at the same result that was published on October 18, 2022. 4 A second CMA decision instructs Meta to terminate the trade, a result that Meta accepted. 5
The decision confirms the CMA’s increased interest in scrutinizing acquisitions of big tech start-ups. This contrasts sharply with previous lack of regulatory intervention, such as Meta’s $16 billion acquisition of WhatsApp in 2014 or Instagram’s $1 billion acquisition in 2012. Both deals were worth significantly more than the Giphy deal, but were subject to more limited scrutiny and were liquidated outright. 6
In practice, this decision created significant uncertainty for the merger of parties in the technology sector and added to the CMA’s broad interpretation of its post-Brexit jurisdiction. This has been seen in other landmark cases, such as the 2019 acquisitions of Saber/Farelogix and Roche/Spark, where CMA claimed jurisdiction despite the goals not generating UK turnover.
This development also reflects the expansion of the European Commission’s jurisdiction, as reflected in the recent Illumina/Grail case discussed here. These cases underline the strong focus of the policy of the European authorities on scrutiny of transactions that may affect competition in European innovation in the future, no matter how small the target is today and regardless of its current links with the UK or the EU.
Consider carefully whether it is reasonable to contact the CMA even if there is no obvious link to the UK.
Where appropriate, full notices or brief briefings can help manage the impact and mitigate the impact of deadlines (given that the CMA process can be lengthy and difficult).
If Meta makes the deal conditional on regulatory approval, it may reconsider the advisability of continuing each stage of the CMA investigation. Instead, he is financially responsible for businesses that he was barred from integrating during a two-year investigation and eventually had to sell.
Meta must now take aggressive steps to restructure Giphy into a separate company that can be sold to third-party buyers under the control of the CMA.
Traders are also reminded to consider whether their transactions in the innovation sector will result in the new UK National Security and Investment Act 2021 (National Security and Investment Act) (or equivalent foreign investment laws in other countries). ).
NSI Act7 requires mandatory notification to the UK government that a target is active in any of a wide range of areas considered to be of national strategic importance, including certain artificial intelligence, cloud computing, quantum technology, computing and other key technological equipment. Only a limited UK reference is required to trigger a notification (e.g. UK-only sales can be initiated), failure to obtain NSI approval carries serious consequences including the risk of revocation and criminal penalties. eight
Risks of changes in UK policy while maintaining a free and open economy. “9
We recommend that transaction participants consider the UK regulatory framework at an early stage of their due diligence, even if the target is primarily located elsewhere. The current UK merger control and NSI regimes are potential stumbling blocks that can lead to significant delays and complications in the transaction process if they are not strategically planned from the outset. If you need help navigating this landscape, please contact us. Our team assists clients with transaction planning, valuation of mergers and foreign direct investment, and notification of global regulators.
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Post time: Dec-09-2022