After 15 months of investigation following the imposition of an Initial Enforcement Order in June 2019, Amazon’s acquisition of 16% of the RooFoods business, better known by its trading name Deliveroo, has been cleared by the CMA. Amazon announced that it would be leading a $575 million Series G investment in the food delivery business in May 2019. In December 2019, following a Phase 1 investigation, the CMA concluded that there was sufficient reason to believe that the merger would result in a significant loss of competition (SLC) and referred the deal for a Phase 2 investigation.
Soon after the CMA began its Phase 2 investigation, COVID-19 hit Europe. The pandemic had an impact on the market and on Deliveroo’s business. This caused the investigation’s focus so change somewhat. At first the impact of the coronavirus looked very negative, with Deliveroo claiming it would go out of business without Amazon’s investment. On the basis of these submissions, the CMA provisionally concluded that Deliveroo’s exit from the market would have been worse for competition than the impact of the transaction. The CMA therefore provisionally approved Amazon’s investment.
However, when it became apparent to the CMA that Deliveroo’s financial position had experienced a turnaround and “the restaurant food delivery market had recovered much more sharply than had been expected and that the restaurant ‘mix’ had also shifted towards smaller, independent restaurants and away from large fast food chains, several of which closed or stopped offering home delivery” (CMA Press Release, 04/08/2020), the CMA determined that Deliveroo was not in fact a failing firm.
The deal was still cleared by the CMA based on the evidence gathered prior to the pandemic, on the basis that the scale of Amazon’s 16% stake would not impact on their desire to compete against Deliveroo in the restaurant and grocery delivery markets, nor would it mean that Amazon would have a large enough stake in the business to result in some significant control. It should be noted that firms whom expect to require merger clearance from the CMA, should be prepared for the lengthy timeframes of getting that clearance. Furthermore, it is surprising that this determination took a Phase 1 and Phase 2 enquiry to reach, given that the rationale for the decision could have been based off data easily obtainable by the CMA.
Stuart McIntosh, Inquiry Chair, commented: “When looking at any merger, the CMA’s role is to assess whether consumers will lose out from a substantial lessening of competition. We have not found this to be the case given the scale of Amazon’s current investment, but if it were to increase its shareholding in Deliveroo, that could trigger a further investigation by the CMA.”
Details of the CMA’s findings can be found on the case page.
Please contact Tim Cowen if you have any questions about the CMA decision, or competition law more generally.