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GIFs Were the Last Straw: Facebook Gets First Order to Unwind Completed Deal

·3-min read

(Bloomberg) -- Few would have predicted that short video loops of Kanye West or cats furiously typing on laptops would be the final straw for competition regulators.

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Yet on Tuesday, the U.K. ordered Meta Inc.’s Facebook to sell Giphy, the animated file search engine it bought for $315 million in 2020, in part because the deal would attract even more users to Meta’s portfolio of products. Giphy gives users access to millions of GIFs, video clips often used to communicate in the digital age.

The decision from the Competition and Markets Authority is the first time a major global regulator has weighed in against a Silicon Valley giant and ordered it to unwind a deal after completion.

Regulators have rued lost opportunities to limit the scale of big tech firms. Europe is currently setting in place rules to restrict “killer acquisitions,” where businesses buy a rival before it can become a threat. Meta’s other deals like its purchase of Instagram are possibly more problematic than Giphy.

“I think it’s a sign of collective regret by the antitrust enforcement agencies around the world that that deal and other ones like it got through, so now what we’re seeing is a reversion to a sort of perhaps more extreme line of enforcement,” Richard Pepper, a lawyer at Macfarlanes in Brussels, said.

Giphy, founded in 2013, built up a library of video clips and animated images that can be attached to messages. Facebook said a takeover would make it “easier for people to find the perfect GIFs and stickers.” A Giphy spokesperson declined to comment. Facebook said was considering its options over whether to appeal.

The CMA was concerned that Giphy would allow Meta to tighten its hold on users, citing in its report that Facebook, WhatsApp and Instagram already accounts for “73% of user time spent on social media in the U.K.” The regulator had previously come under fire for waving those deals through.

While half of Giphy’s business involved Facebook and its apps, the company also provided the same search service to competitors such as Apple Inc.’s iMessage, Twitter Inc., Signal, and TikTok. Giphy also offered branded GIFs to big advertisers, a service Facebook quickly stopped after completing the deal.

The London-based CMA has been thrust into the spotlight since emerging from the shadow of EU antitrust chief Margrethe Vestager post-Brexit. Along with regulators in the EU and U.S., the agency has stepped up scrutiny of Google, Apple, and Facebook. It’s also probing Nvidia Corp.’s much-contested takeover of Arm, on both competition and antitrust concerns.

“A stricter M&A policy will incentivize Big Tech to resort to organic growth strategies,” said Nicolas Petit, a competition professor at European University Institute. “If agencies are serious that they want to block mergers with non competitors, we’re going to see less incentives for small firms to develop products that work well with big tech platforms.”

Killer Acquisitions

A review by the Federal Trade Commission in September concluded that hundreds of deals by U.S. technology giants flew under the radar of merger watchdogs due to various ‘loopholes.’ The agency headed by Lina Khan hit Meta with a new antitrust case that seeks to revisit its purchases of WhatsApp and Instagram.

The U.K. is now leading the regulatory fightback. Britain’s top antitrust enforcer Andrea Coscelli, who leads the CMA, has made it clear the largest tech companies would face scrutiny for any transaction, no matter how small.

“We’re obviously very worried about Facebook’s position,” Coscelli said in a Bloomberg interview on Oct. 23. “The idea that they are buying a competitor clearly seems to go in the wrong directions.”

The European Commission tested its ability to review smaller deals for the first time this year by objecting to biotech company Illumina Inc. attempted purchase of cancer diagnostics company Grail Inc., which doesn’t meet the usual thresholds for review.

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