Out-Law News | 12 Dec 2019 | 2:47 pm | 3 min. read
Amazon and Deliveroo could find it difficult to identify remedies that could address concerns raised about their investment agreement and stave off an in-depth competition investigation into their deal, an expert in competition law has said.
Amazon announced earlier this year that it had agreed a deal to invest in food delivery business Deliveroo. The investment came as part of a broader fundraising exercise run by Deliveroo, which attracted a total of $575 million in fresh investment.
The UK's Competition and Markets Authority (CMA) announced on Wednesday that an initial probe into Amazon's planned investment in Deliveroo raised "serious competition concerns". The CMA said that, in return for its investment, Amazon would hold a minority shareholding in Deliveroo, have a say in the management of the company, and could potentially influence Deliveroo's business strategy. It has given the companies five working days to submit legally binding proposals to address those concerns.
A 'phase two' competition investigation, which can last several months, is planned by the regulator if the companies fail to submit such proposals or their prospective remedies are rejected.
Alan Davis of Pinsent Masons, the law firm behind Out-Law, said: "The range of likely or possible remedies that parties can offer at 'phase one' of a probe are limited, and so it is difficult to see immediately what remedies the companies could offer to resolve the concerns identified by the CMA at this stage."
The CMA said its competition concerns arise in two particular UK markets – the markets for online restaurant food delivery and online convenience grocery delivery.
The CMA said the deal could harm competition in online restaurant food delivery by "discouraging Amazon from re-entering the market in the UK". Amazon exited the market in 2018, but the regulator said evidence from the company's own internal documents "shows a strong, continued interest in this sector and a material likelihood that Amazon would look to re-enter".
"Given the limited number of existing suppliers, the CMA found that the potential re-entry by a supplier such as Amazon would significantly increase competition in online restaurant food delivery in the UK," the CMA said.
The regulator also said that competition in the market for online convenience grocery delivery could also be damaged as a result of Amazon's investment in Deliveroo. It said both companies have "already established market-leading positions" in this emerging market.
"While there are some differences in the services that Amazon and Deliveroo offer to customers, the CMA found that competition between them could increase in future as the market develops," it said.
Davis said that the case reflects the fact that the CMA and other competition regulators in Europe are increasingly placing transactions entered into by major technology companies under heavy scrutiny. This follows criticism over their assessment of potential competition issues in previous cases including Facebook/Whatsapp where tech giants have crossed over into new markets, he said.
"This case is a little more unusual than others because here the deal would only see Amazon obtain a minority shareholding in Deliveroo," Davis said. "The CMA has clearly satisfied itself that the investment agreement between the companies passes its jurisdictional test to qualify for review, by determining that the deal could give Amazon 'material influence' over Deliveroo's affairs."
"The CMA's statement also reveals the increasing reliance the regulator is placing on internal documents as a source of information. Here it has factored in documents obtained from Amazon which it says show the company retained its interest in the UK online restaurant food delivery market despite exiting it last year, and its potential to re-enter that market in future," he said.
The CMA opened its formal merger inquiry into the Amazon and Deliveroo investment agreement back in October, but not before it had imposed an initial enforcement order prohibiting the companies from integrating their businesses or taking any other action that would "impair the ability of the Deliveroo business or the Amazon business to compete independently in any of the markets affected by the transaction".
Andrea Gomes da Silva, CMA executive director, said: "Millions of people in the UK use online food platforms for takeaways, and more than ever are making use of similar services for the same-day delivery of groceries. There are relatively few players in these markets, so we’re concerned that Amazon having this kind of influence over Deliveroo could dampen the emerging competition between the two businesses."
"If the deal were to proceed in its current form, there’s a real risk that it could leave customers, restaurants and grocers facing higher prices and lower quality services as these markets develop. This is because the significant competition which could otherwise exist between Amazon and Deliveroo would be reduced," Gomes da Silva said.