U.K.'s Facebook order could chill tech acquisitions

The U.K.'s move to unwind Facebook's Giphy acquisition raises the prospect of a new world in which many different international regulators can block tech deals.

Why it matters: It's the first time a foreign competition authority has ordered a Big Tech company to sell off an asset.

• The U.K. could trailblaze a "veto-like" system for global competition authorities, said Sam Bowman, director of competition policy at the International Center for Law & Economics. The EU and the U.S. are also seeking to loosen the rules for reviewing deals over competitive concerns.

Details: British regulators said the $400 million merger finalized in 2020 was anticompetitive because Facebook could theoretically increase market power by "denying or limiting other platforms' access to Giphy GIFs," or "changing the terms of access," to its GIFs for competitive sites.

• They also said Facebook would shut down Giphy's advertising business, therefore eliminating Giphy's competition to Facebook's ad business.
• "The CMA [the U.K.'s Competition and Market Authority] is saying, retrospectively, that 'if our gang was in charge when the Instagram and WhatsApp deals went through, we would've scrutinized it more,'" said Bowman. "This is our attempt to make amends and change the precedent."

What they're saying: "It's right in principle that the U.K. competition authority should be able to review deals, but once that becomes 100 [countries] doing the same thing, potentially almost any deal becomes unviable," Bowman said.

• "It might embolden other competition authorities to be slightly more aggressive, but everyone is working within their own set of legal rules," added Peter Broadhurst, a London-based competition lawyer.

The other side: "We disagree with this decision. We are reviewing the decision and considering all options, including appeal. Both consumers and Giphy are better off with the support of our infrastructure, talent and resources," Meta (formerly Facebook) said in a statement.

• Bowman said the decision could also chill startups eyeing the U.K. as a market: "In the long run, we have to think about the effects this has on startups and the next Giphy. It might say, if you are a Giphy, perhaps if you would like to be acquired, and if you want to avoid this risk, just don't supply to U.K. users."

Flashback: In 2020, the CMA blocked an airline booking software merger, finding it could result in less innovation in the market and higher fees.

What we're watching: If Meta decides to appeal, on jurisdiction and/or substance, it will go to the U.K.'s Competition Appeal Tribunal, which can re-affirm the CMA's decision or suggest an alternate remedy.

• If Meta loses on appeal, it could choose to end services in the U.K. entirely to avoid complying, but observers view that as unlikely.