It is standard practice to issue an initial enforcement order (IEO) at the start of an investigation into a completed acquisition. This ensures that companies continue to compete with each other as they would have without the merger, and prevents the companies involved from integrating further while a merger investigation is ongoing. The Competition and Markets Authority (CMA) imposed this type of order on Facebook in June 2020 in relation to its purchase of Giphy.
Facebook is required, as part of the process, to provide the CMA with regular updates outlining its compliance with the IEO. Facebook significantly limited the scope of those updates, despite repeated warnings from the CMA. It was also criticised last year by the Competition Appeal Tribunal and Court of Appeal for its lack of cooperation with the CMA and “what might be regarded as a high-risk strategy” in relation to not complying with the IEO and not keeping the CMA updated as the IEO required.
The compliance reports are crucial to ensure that the CMA has oversight of the companies’ behaviour, including whether Facebook has been taking any action which might prejudice the outcome of its investigation.
This is the first time a company has been found by the CMA to have breached an IEO by consciously refusing to report all the required information. Given the multiple warnings it gave Facebook, the CMA considers that Facebook’s failure to comply was deliberate. As a result, the CMA has issued a fine of £50 million for this major breach, which fundamentally undermined its ability to prevent, monitor and put right any issues.
Separately, the CMA has fined Facebook £500,000 for changing its Chief Compliance Officer on two separate occasions without seeking consent first.
Joel Bamford, Senior Director of Mergers at the CMA, said:
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.
We warned Facebook that its refusal to provide us with important information was a breach of the order but, even after losing its appeal in two separate courts, Facebook continued to disregard its legal obligations.
This should serve as a warning to any company that thinks it is above the law.
The CMA’s investigation into Facebook’s merger with Giphy is ongoing and it will work constructively with the companies as things progress further. No decision has yet been reached in relation to the merger.