Amazon's Deliveroo investment subject to UK investigation

Out-Law News | 08 Jan 2020 | 1:56 pm | 1 min. read

Amazon's plans to complete an investment agreement with food delivery business Deliveroo will be subject to the outcome of an in-depth competition investigation in the UK.

The Competition and Markets Authority (CMA) confirmed on 27 December that it had referred the investment agreement for a so-called 'phase two' probe after the companies had failed to offer undertakings to address concerns it had previously expressed about the deal.

Under the investment agreement, which came as part of a broader $575 million fundraising exercise run by Deliveroo last year, Amazon would only hold a minority shareholding in Deliveroo. However, the CMA carried out an initial assessment of the deal and last month said it had identified competition concerns arising from it 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", while it 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.

The regulator's concerns stem from its findings that, under the terms of the investment agreement, Amazon would have a say in the management of Deliveroo, and could potentially influence the food delivery company's business strategy.

The CMA had given Amazon and Deliveroo until 18 December 2019 to submit legally binding proposals to address its concerns, but it has now confirmed that the companies "did not offer any such undertakings" within the deadline.

The CMA last year imposed an initial enforcement order prohibiting Amazon and Deliveroo 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". That order still applies, with some derogations permitted by the CMA.

Competition law expert Alan Davis of Pinsent Masons, the law firm behind Out-Law, said: "This is a rare instance where the CMA's competition concerns arise in a transaction that would not reduce the number of competitors. Rather, the CMA wishes to investigate whether absent the transaction Amazon would be likely to re-enter the UK online restaurant food delivery sector which it exited in 2018. It is also one of only a handful of transactions involving a minority stake acquisition that have been referred for a 'phase two' merger review in the UK."

"The CMA's close scrutiny of the deal reflects its current focus on digital sector transactions involving 'big tech' companies," he said.

The CMA's statutory deadline for completing its in-depth competition investigation is 11 June 2020, although this deadline can be extended in some circumstances. The regulator appointed an inquiry group to lead the investigation on Monday.