Facebook's (FB) - Get Report acquisition of popular animated pictures platform Giphy has come under scrutiny by the U.K.'s antitrust regulator over concerns that the deal could limit Giphy's digital advertising potential and curtail the supply of GIFs to other social platforms.
"Many people use GIFs when they communicate online so it’s important that platforms aren’t restricted in what they can offer and people have a range of options to pick from," said Andrea Gomes da Silva, Executive Director of Markets and Mergers for the U.K.'s Competition and Markets Authority (CMA), in a statement. Facebook agreed to buy Giphy last May for a reported $400 million.
The CMA said it has found evidence that Giphy had planned to expand its digital advertising partnerships to other countries, including the U.K.
"If Giphy and Facebook remain merged, Giphy could have less incentive to expand its digital advertising, leading to a loss of potential competition in this market," Gomes da Silva said.
The regulator added this is "particularly concerning" given Facebook’s existing market power in display advertising.
"It is vital we ensure that Facebook, as a large and powerful Big Tech firm, isn’t using its strong market position to stifle competition," added Gomes da Silva.
The CMA also found that the deal could "harm rival social media platforms, as it could mean Giphy would stop supplying GIFs to these companies or do so on worse terms."
Facebook had said that the graphics interchange format, or GIF, platform will become a part of Instagram but didn’t disclose the terms of the deal. Media reports suggest the deal was worth $400 million.
The two companies now have five days to offer legally binding proposals to address the competition concerns identified by the CMA.
"Should the companies fail to address our concerns, we will launch a more in-depth review to ensure consumers and businesses don’t lose out," added Gomes da Silva.
Last December, it was reported that a group of 40 U.S. states led by New York were investigating Facebook for possible anti-competitive practices.
Facebook CEO Mark Zuckerberg has argued in congressional testimony that the company has a range of competitors, including the other U.S. tech giants. He has defended the company's acquisitions of platforms such as Instagram and WhatsApp by saying Facebook has helped them expand from small, insignificant companies into powerhouses.
Shares of Facebook were falling 0.84% to $279.77 at last check on Thursday.