The UK competition regulator CMA has ordered Facebook* to divest Giphy. Earlier this year, the CMA cleared Facebook’s acquisition of Kustomer in Phase I, a deal now under heavy scrutiny by the European Commission. As much as antitrust regulators emphasize a tough stance on acquisitions by big tech, is there a risk of diverging views?
The potential acquisition of Kustomer shows how regulators can take different stances: The CMA seems to have assessed the same issues that led the European Commission to opening a Phase II investigation and to Facebook offering remedies. The German Bundeskartellamt, on the other hand, is investigating whether the deal should have been notified in Germany. The Giphy transaction raised a similar issue in Austria.
Giphy – Two Fines, First Times, and a Phase II
Giphy is an online database for animated GIFs – the ones we all know from social media and messenger services. Third-party apps can integrate the service, which is why even when you have never heard of Giphy, you might have well used their offering. Apparently, by number of searches Giphy is even the world’s second largest search engine.
Facebook took over Giphy already in May 2020. The merger control regime in the UK is – at least technically – voluntary, so the deal could (and did) close without UK clearance. However, the CMA can still review transactions (if the relevant thresholds are met) and imposed a so-called “Initial Enforcement Order” in June 2020, requiring Facebook to keep the Giphy business separate from its other operations. Not unusual in the UK.
However, what happened then was unusual indeed. In October 2021, the CMA fined Facebook GBP 50.5 million for breaching the Initial Enforcement Order, the first time a breach was found by “consciously refusing to report all the required information”. This was not the only fine levied on Facebook for this kind of gun jumping-violation: Two months earlier, in August 2021, the Austrian competition regulator fined Facebook EUR 9.6 million for failure to notify the transaction in the first place.
On 30 November this year, the CMA finally concluded its merger control review and directed Facebook to divest Giphy. The review in Austria, sent to Phase II in August, still seems to be ongoing.
Kustomer – No Worries, Remedies, and an Investigation
I have blogged on this one previously, but it is time for an update. Kustomer offers customer relationship management software that in particular helps businesses communicate with consumers via, e.g., services like WhatsApp, Instagram and Twitter.
Facebook announced its intention to acquire Kustomer in November 2020. Given the tough stance in Giphy, it might be seen as surprising from the outside that the CMA cleared the transaction after a Phase I review in September 2021 (same outcome also in Australia in November).
What makes this case particularly interesting is the European Commission’s scrutiny in comparison to the CMA’s approach. Same as Giphy, the deal was not notifiable to the Commission. Also same as Giphy, it was notifiable in Austria. Different than Giphy, though, the Austrian regulator referred Kustomer to the European Commission.
The Commission launched a Phase II investigation in August 2021, and Facebook offered remedies last week. Based on the Commission’s press release when opening Phase II, the regulator appears to see issues where the CMA saw none, in particular with regard to (i) a potential strategy of Facebook to foreclose Kustomer’s rivals from using Facebook’s messaging channels, and (ii) increasing Facebook’s “data advantage”. The CMA had dismissed related theories of harm, mainly because it considered Kustomer to be too small to create sufficient leverage for Facebook.
As if all of this was not enough, adding more complexity to the case, in July 2021 the Bundeskartellamt initiated a proceeding against Facebook to assess whether the Kustomer acquisition is notifiable in Germany. How can that be, when the European Commission is the one-stop shop for filings in the EU, you ask? The answer is in our previous blogpost linked above (and here, for your convenience).
Diverging views – Risk, Reality, and an Outlook
From the outside, it is difficult to judge whether the views of the European Commission and the CMA actually diverge with regard to Kustomer. It could also be that the substance of the case and in particular the market position of Kustomer simply differs between the UK and the EU. Even in case views indeed diverge, that is not unseen in merger control and not necessarily a bad thing.
What both Giphy and Kustomer show, however, is how difficult the landscape has become for deals involving big tech. That is not news these days, but these two particular cases with clearances, fines, investigations and remedies offered show just how complex things have become. One also needs to take into account that, in the overall environment these days, it is very difficult for any antitrust regulator to justify not closely scrutinizing a big tech deal.
* The company name was changed to Meta, but as the decisions in the cases discussed in this post mostly refer to Facebook, we will also do so here.