Amazon deal with UK’s Deliveroo thrown into doubt
Competition regulator refers $575m investment in food delivery company for Phase 2 investigation
Amazon’s attempt to return to the UK food delivery market by leading a $575m investment in Deliveroo has been thrown into doubt by competition authorities, which announced an in-depth investigation into the deal on Friday.
The move by the UK Competition and Markets Authority, which has the power to order the deal to be unwound, marks its increased wariness over the reach of Amazon and other big technology companies and comes as it begins to set up a new tech regulator to police them more tightly.
“The regulator clearly feels it needs to show they leave no stone unturned when it comes to Big Tech,” said one competition lawyer close to the deal.
In a preliminary decision earlier this month, the CMA said the deal “in its current form” could lead to higher prices and a worse service for customers ordering restaurant meals and groceries for delivery.
In a note at the time, Giles Thorne, an analyst at Jefferies, said: “The CMA has apparently taken the view that Amazon’s days of monopolising consumer verticals in the UK are at an end.”
Two particular concerns led the CMA to launch a so-called “Phase 2” investigation.
The regulator said it had discovered, from internal documents and interviews with senior managers, that Amazon might have re-entered the UK market for deliveries restaurant meals if it had not invested in Deliveroo, something that would have provided a boost to competition.
Without Amazon, the UK has three major players in food delivery: Deliveroo, Just Eat and Uber Eats. Amazon closed its own delivery company, Amazon Restaurants, in 2018.
The CMA also said that in the nascent field of grocery delivery, the two companies are rivals with “major expansion plans”, and that a tie-up could lessen competition. Deliveroo has been experimenting with rapid deliveries from Co-op and Sainsbury’s convenience stores, while Amazon has a tie-up with Morrisons, the supermarket chain, for same-day online grocery deliveries in some UK cities.
Neither company was able to offer remedies for the CMA’s concerns.
The in-depth probe signals a further six months of uncertainty for Deliveroo. The company last raised money, prior to the Amazon deal, in September 2017 and reported losses of almost £185m in 2018.
A spokesperson said Deliveroo had been working closely with the CMA and was confident it would persuade the regulator that the deal “will add to competition, helping restaurants to grow their businesses, creating more work for riders, and increasing choice for customers.”
An Amazon spokesperson said: “A homegrown UK business like Deliveroo should have broad access to investors and supporters.”
The probe could affect Deliveroo’s London-based rival Just Eat, whose shareholders are weighing rival final bids from Naspers and Takeaway.com. Takeaway.com’s higher, all-share offer foresees less investment into Just Eat, and has the backing of 40 per cent of shareholders.
“Clearly, any reduction in Deliveroo’s firepower could reduce the investment required in Just Eat’s core UK market,” analysts at Citigroup said in a note to clients earlier this month.