Will Facebook Sell Giphy After U.K. Watchdog Organization's Order?
A U.K. competition watchdog company has ordered Facebook to sell Giphy due to concerns about limiting competition in social media and advertising.
Nov. 30 2021, Published 11:09 a.m. ET
Meta, the parent company of Facebook, has been ordered by a U.K. watchdog organization to sell off its animated-picture platform Giphy. Selling Giphy is a means of protecting social media users, according to the CMA (Competition and Markets Authority).
The CMA also said that Facebook holding on to Giphy could harm U.K. advertisers and limit competition among social media platforms and advertisers. Whether Facebook-turned-Meta will comply with the U.K. firm’s mandate remains to be seen. On Nov. 30, a Meta spokesperson said that the company disagrees with the decision.
Why does the U.K. watchdog want Facebook to give up Giphy?
Over the summer, the CMA started its probe into Facebook's acquisition of Giphy. In August, the CMA announced a provisional decision that Facebook’s purchase of Giphy would likely harm competition between social media platforms and the advertising market.
The CMA said that Facebook controls almost half of the U.K. display ad market, so shutting down Giphy's advertising services was a problem.
The chairman of the independent inquiry group handling the investigation, Stuart McIntosh, said, “By requiring Facebook to sell Giphy, we are protecting millions of social media users and promoting competition and innovation in digital advertising.”
The CMA also imposed a 50.5 million pound fine (about $69 million) in October on what was then Facebook. The company was legally required to provide regular updates to the CMA during its investigation into the merger.
Joel Bamford, the senior director of mergers at the CMA, said that companies aren't required to seek the organization's approval before an acquisition. However, he said, “We can stop the companies from integrating further if we think consumers might be affected and an investigation is needed.”
Facebook acquired Giphy in 2020.
The social media giant Facebook made an earlier attempt to acquire Giphy in 2015, at which time Giphy declined the offer.
Giphy provides shareable animated pictures on social media platforms.
In May 2020, Facebook announced that it would acquire Giphy for $400 million. There were plans for the acquisition to be integrated within the Instagram app. At the time, other companies including Twitter and Slack had built Giphy into their own apps. There were concerns that Facebook might restrict the usage of Giphy on other platforms.
The FTC didn't comment on the Facebook-Giphy acquisition at the time, but more regulatory groups and lawmakers have been calling for stricter rules on mergers.
Will Facebook have to sell Giphy?
The CMA warned in August that if its suspicions were confirmed, it might require Facebook to unwind the $400 million acquisition. A Meta spokesperson indicated that the company is considering various options, including an appeal to go against the CMA’s decision since it's reluctant to sell Giphy.
Law partner Peter Broadhurst of Crowell & Moring told CNBC that the ruling by the CMA is noteworthy. It's the first blockage of a major digital technology deal for the agency.
He said, “The decision also suggests that the CMA will not back down in the face of questions and criticism over jurisdiction and overreach—this is exactly the kind of deal that the CMA feels it should be scrutinizing.”