LONDON (Reuters) - Amazon’s purchase of a stake in online food delivery group Deliveroo has been put in doubt by Britain’s competition regulator which said it raised “serious competition concerns” for consumers and may require an in-depth investigation.
Amazon led a $575 million fundraising in Deliveroo in May, making what the two parties called “a minority investment” and pitching it against Uber Eats, Just Eat and Takeaway.com in the global race to dominate the market for takeaway meal deliveries.
The deal would allow Amazon to participate in the management of Deliveroo, which has grown rapidly since being founded in 2013. It now has global sales of close to 500 million pounds ($642 million) and operates in over 100 towns and cities across Britain.
Neither company has disclosed a figure for Amazon’s funding contribution.
After completing a “Phase 1” probe, the Competition and Markets Authority (CMA) said on Wednesday it would proceed to an in-depth investigation if Amazon and Deliveroo failed to offer legally binding proposals that addressed its concerns.
The CMA’s initial probe found that the investment, in its current form, could harm competition in two ways.
Firstly, the regulator is concerned it could damage competition in online restaurant food delivery by discouraging Amazon from re-entering a market it exited last year.
Secondly, the CMA is concerned the deal could damage competition in the emerging market for online convenience grocery delivery, where Amazon and Deliveroo have already established market-leading positions.
“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,” CMA Executive Director Andrea Gomes da Silva said.
“This is because the significant competition which could otherwise exist between Amazon and Deliveroo would be reduced.”
Responding to the CMA, Deliveroo and Amazon both defended the deal.
“We are confident that we will persuade the CMA of the facts that this minority investment will add to competition, helping restaurants to grow their businesses, creating more work for riders, and increasing choice for customers,” Deliveroo said in a statement.
Amazon said Deliveroo should have broad access to investors and supporters.
“Amazon believes that this investment funding will lead to more pro-consumer innovation,” it added.
The CMA has given the two companies five working days to present their proposals. The regulator would then have five working days to consider whether to accept their offer instead of referring the case to an in-depth probe.
That timetable indicates a decision from the CMA in late December - around the time the takeover battle for Just Eat, involving Takeaway and Prosus, is expected to come to a head.
In June, the CMA served an initial enforcement order (IEO) on Amazon and Deliveroo, signaling possible concerns about the transaction. The order required the two companies to operate independently, effectively putting a brake on the deal.
The CMA then launched a formal “Phase 1” merger inquiry in October.
Since former lawmaker Andrew Tyrie became chairman of the CMA last year, it has increasingly bared its teeth.
In April it blocked supermarket group Sainsbury’s 7.3 billion pound ($9.4 billion) agreed takeover of Walmart owned rival Asda.
($1 = 0.7794 pounds)
Reporting by James Davey, editing by Paul Sandle and Jason Neely