Amazon’s agreed $500 million investment in UK food ordering and delivery app Deliveroo is threatened by a potential veto by the Competition & Markets Authority. The competition watchdog, currently investigating the proposed investment, has ruled that the deal could stifle competition in the sector to the extent that consumers face higher prices and a lower quality service.
The takeaway order and delivery app sector is highly competitive with Deliveroo battling with competitors including Just Eat, currently the subject of competing takeover bids from European peer Takeaway.com and South African online conglomerate Napster, and UberEATS. However, the competition watchdog is clearly concerned that the financial muscle of Amazon’s backing would give Deliveroo a significant advantage over the competition.
The regulator’s conclusion is that the proposed investment gave it “serious competition concerns for UK customers”. The watchdog has given Deliveroo and Amazon five working days to come up with solutions to particular competition concerns it has raised with them.
The Competition & Markets Authority started the first phase of an investigation into the deal back in October but has said it will need another five days before either accepting the deal legally or deciding to refer it to a phase-two investigation. The latter would last six months. Deliveroo and Amazon could choose not to respond to the concerns raised by the watchdog and decline to offer remedies. That would result in an immediate referral to a stage-two investigation.
Deliveroo, founded in 2013, is the leading takeaway app on the UK market and one of the largest internationally. The company works with over 80,000 takeaways and restaurants across 14 countries. It has a turnover of around half a billion but has yet to turn a profit, focusing its efforts on growth.
That means a regular need to raise fresh investment capital and in May Deliveroo first announced that Amazon would lead a new $575 million funding round that valued the company at around $4 billion. Amazon itself is believed to have committed around $500 million of the total raise. The investment will give the ecommerce giant a 10% to 15% stake in Deliveroo, if the deal goes through.
The regulator’s main concern is that Amazon’s minority but significant equity stake in will allow it to “participate in the management of the company”. This, says the CMA, is enough to discourage Amazon itself from re-entering the market – it has its own Amazon Restaurants business for food delivery – limiting competition. Deliveroo could also be given an advantage by potentially being offered a partnership with Amazon on groceries delivery.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.