The UK regulator has asked Amazon to put its deal with the UK’s food delivery company Deliveroo on hold. Amazon and Deliveroo could merge in the future.
The UK’s Competition and Markets Authority (CMA), have undertaken an investigation into potential breaches of competition rules.
CMA has raised concerns this week that the merger between the two would create dominance, limiting customer choice in the market. On Friday, CMA issued an initial enforcement order against the companies after Amazon bought a stake in Deliveroo. It gave CMA the grounds to inquire the details of the deal. It issued an initial enforcement order limiting what changes Deliveroo can make to its business and its relationship with Amazon.
CMA’s direction to put the deal on hold implies that Deliveroo can continue its business in the UK, but it must function as a separate company with its own sales, targets and branding, without becoming a subsidiary to Amazon. The order also forbids the food delivery company from making any “substantive changes” to the organizational structure of the company while the CMA investigations are ongoing.
The order is preliminary to a decision, with no set deadline, on whether to launch a full merger enquiry.
In May 2019, Amazon decided to invest $575m in Deliveroo and became the company’s largest backer. The e-commerce giant was the lead investor though its has bought a minority stake in the company with CMA’s permission.
The CMA said it had “reasonable grounds for suspecting” that Amazon and Roofoods, which trades as Deliveroo, have “ceased to be distinct” or were planning to merge, which would break competition rules.
Amazon’s entry into the sector threatened Deliveroo’s food delivery competitors, causing shares to fall in the FTSE 100’s Just Eat as well as Germany’s Delivery Hero and the Dutch company Takeaway.com. Amazon’s first attempt to enter the food industry got shut in December, after two years of its opening. Thereafter, Amazon became potential buyer for Deliveroo, making second attempt at getting in the hot food delivery industry.
Deliveroo was founded in London by the former investment banker Will Shu. Shu’s company has been speculated to be on Amazon’s list of target takeovers for this year, besides investing heavily in technology sector.