The Competition and Markets Authority (the CMA) has fined Facebook £50 million for breaching an initial enforcement order (IEO) imposed in relation to its completed acquisition of Giphy, an online database and search engine that allows users to search and share GIFs. This is by far the highest fine ever imposed by the CMA for a procedural violation of its merger control rules. This step, and the size of the fine, illustrates the importance for merging parties to consider the potential implications of completing transactions prior to CMA clearance.
Unusually, the UK’s merger control regime does not impose a mandatory notification requirement, so (unless the CMA has already intervened) companies can lawfully complete acquisitions without approval; this was the case in the Facebook/Giphy deal. However, where the CMA calls-in completed transactions for review, it routinely imposes IEOs to ensure that the target and acquirer continue to compete effectively pending resolution of the case. As Joel Bamford, Senior Director of Mergers at the CMA, noted in connection with the fine: “Initial enforcement orders are a key part of the UK’s voluntary merger control regime. Companies are not required to seek CMA approval before they complete an acquisition but, if they decide to go ahead with a merger, we can stop the companies from integrating further if we think consumers might be affected and an investigation is needed.”
The CMA imposed the IEO on Facebook in June 2020. It required Facebook, among other things, to provide the CMA with updates relating to its compliance with the IEO. The CMA’s fining notice states that Facebook repeatedly failed to provide a sufficient level of information, despite multiple warnings. As a result, the CMA concluded that Facebook’s breach was deliberate and imposed a fine of £50 million.
This is the first time the CMA has found a company to have breached an IEO by failing to report the required information. The fine is several orders of magnitude higher than previous IEO penalties imposed by the CMA (the previous record was a fine of £325,000 incurred by ION Investment Group Limited and ION Trading Technologies Limited in relation to the former’s completed acquisition of Broadway Technology Holdings LLC).
Most obviously, this demonstrates the importance to the CMA of procedural compliance. More broadly, it is symptomatic of the CMA’s highly interventionist approach in merger control. The CMA has shown that it will not hesitate to assert jurisdiction, particularly in cases involving tech companies, and to scrutinise transactions whether or not their immediate nexus is in the UK. Against this backdrop, merging parties should carefully consider the pros and cons of proactively approaching the CMA, including in light of the potential need to comply with an IEO and of course the ultimate risk of unwinding the underlying transaction.
The CMA’s review of Facebook/Giphy is ongoing and a decision is expected on or before the Phase 2 review deadline of 1 December 2021.