British regulator to block purchase of Giphy by Meta

The UK competition regulator is expected to block the $315 million (BRL 1.76 billion) acquisition by Target of the online gif platform Giphy in the coming days, in an escalation of the watchdog’s attack on big tech companies.

The Competition and Markets Authority (CMA) is expected to reverse the agreement, according to individuals familiar with the matter; it would be the first time the CMA had stopped a Big Tech deal.

The law enforcement agency began investigating in June last year Meta’s acquisition of Giphy — the largest provider of animated images, known as gifs, for social networks — based in New York. A decision to block the deal would be a notable precedent for the British body, which has never tried to reverse a concluded technology deal.

CMA declined to comment.

In August, the CMA provisionally decided that Meta, formerly known as Facebook, should be forced to sell Giphy due to competition concerns. She has until December 1st to make a final decision.

At that time, the CMA claimed that Meta could deny rivals access to gifs and require platforms like TikTok or Snapchat to deliver more of their own data to access gifs, consolidating power in Meta’s hands.

The regulator also said the deal could eliminate a competitor of Meta in the UK online advertising market, despite Giphy’s absence in that sector.

Facebook controls 40% to 50% of the UK online advertising market, according to the CMA. Giphy offered paid advertising in the United States, and the CMA claimed that, had it not been for the merger, Giphy could have expanded that service in the United Kingdom, which the company denied.

Meta aggressively fought the regulator’s assessment, and a likely blockade will be controversial, possibly prompting a court appeal. In response to the CMA’s tentative findings, Meta accused the agency of “practicing abuse of extraterritorial power” and “sending a freezing message to startup entrepreneurs: don’t create new companies because you won’t be able to sell them.”

In August Meta said: “We disagree with the CMA’s preliminary findings, which we do not believe are supported by evidence. As we have shown, this merger is in the best interest of the UK population and businesses — and across the world — who use the Giphy and our services. We will continue to work with CMA to address the misconception that the deal hurts competition.”

According to documents presented by Meta’s lawyers, the CMA’s findings contain “fundamental errors of law and fact.” The company also criticized the agency’s assessment of Giphy’s future potential in online advertising. Giphy would be more likely, said Meta, to “remain in a downsized and underfunded state.”

Meta declined to comment on the CMA’s upcoming decision in addition to its earlier comments.
The shock became more caustic in October, when the CMA fined Meta £50.5 million (£381 million) for a “major violation” of the order that the company remain separate from Giphy during the investigation. The CMA accused Meta of “knowingly refusing to report” information about itself and Giphy, imposing the largest fine to date for such a violation.

Regulators around the world have grown increasingly concerned about allowing so-called “killer takeovers” to pass through their networks after accepting Meta’s takeover of smaller rivals Instagram and WhatsApp.

In Brussels, European officials are evaluating ways to look at mergers that fall outside their scope on the basis of revenue alone. The British regulator also hopes to attack potential killer takeovers as part of a proposed special merger regime for Big Techs.

Translated by Luiz Roberto M. Gonçalves