The UK Competition & Markets Authority (CMA) has ordered Facebook to sell Giphy, after concluding the takeover of the publisher of shared online images would harm social media users and advertisers in the UK.
The CMA's investigation into the acquisition by Facebook was started over a year ago, and the regulator flagged potential competition problems already in August this year. In its final decision, the CMA found that the deal would reduce competition between social media platforms and has removed Giphy as a potential challenger to Facebook in the display advertising market. Facebook already controls around half of the GBP 7 billion UK display advertising market. The CMA decided that these competition concerns can only be addressed by Facebook selling Giphy to an approved buyer.
The final report from the competition watchdog acknowledges that the sale of Giphy poses particular challenges following the completion of the takeover by Facebook in 2020 already. Facebook has since terminated Giphy's revenue function and team, transferred almost all staff to Facebook employment contracts, and transferred Giphy's back office functions to Facebook.
As a result, Giphy is now in a significantly weaker position than before the merger. Facebook will be required to reinstate specific Giphy activities and assets to ensure that it has the required technical, creative and management personnel to compete effectively following the sale. It will also have to ensure that Giphy is sold with sufficient financial resources to allow it to operate and compete as it would have done before being taken over by Facebook, the CMA said.
The CMA already fined Facebook GBP 50 million in October for failure to comply with an order to keep Giphy's business separate until the regulatory investigation was concluded.
The UK decision represents the first concrete move by a national regulator to force one of the big internet firms to undo a 'killer acquisition'. The US FTC has proposed Facebook do the same with WhatsApp and Instagram, but its case has already faced an initial rejection in court. The EU is working on legislation to make it easier for competition authorities to prohibit these kind of takeovers that allow dominant players to eliminate a potential competitor from the market.
