Home Latest News Watchdog Approves Amazon Deliveroo Investment After Bankruptcy Warning

Watchdog Approves Amazon Deliveroo Investment After Bankruptcy Warning

by Paul
Deliveroo

Amazon’s proposed $500 million investment in Deliveroo has been approved by the Competition and Markets Authority (CMA) after the regulator dropped its investigation. There had been some concern that a tie-up with Amazon would give Deliveroo enough of a competitive advantage over competitors in the food delivery app market to lead to higher end prices and poorer service.

The ongoing investigation into that possibility has now been dropped because Deliveroo’s financial position has weakened to the extent the gig economy tech start-up told the Authority it will run out of cash without the Amazon injection. The CMA has accepted the fact that the Covid-19 pandemic represents an “unprecedented situation”, and has given provisional clearance for Amazon to make the investment to prevent Deliveroo going bust.

The investigation was originally started in December. The CMA’s reasoning was that while Amazon’s investment would give it a minority state in Roofoods, the holding company that owns the Deliveroo brand, it would allow the e-commerce giant “to participate in the management of the company”.

That, said the CMA, was enough to discourage Amazon from itself returning to the UK’s online food delivery app sector. It would also, it was presumed, have a positive influence on Deliveroo’s strength of position in the online groceries delivery market.

In reaching its decision on Friday, the CMA said that to return to the UK market on its own, Amazon would realistically be faced with the need to “develop a point-to-point delivery network and establish restaurants, riders and consumers”, which “would take time”.

Together with the concession the Covid-19 pandemic is having “a significant negative impact” on Deliveroo as a result of the fact many of its partner restaurants have temporarily shut down, that was enough to convince the CMA to let the Amazon investment go ahead.

Deliveroo is now 7 years old, having been founded in 2013 by former stock market analyst William Shu. The company has expanded into 12 countries and works with more than 80,000 restaurants. Its most recent fundraising round was announced last May, with the $575 million share issue led by Amazon. The deal valued Deliveroo at $4 billion but has been held up while waiting on the conclusion of the CMA’s investigation into whether it would reduce competition on the UK market in a way that would negatively impact the end consumer.

That investigation was dropped last week after being informed by Deliveroo that it would “fail financially and exit the market without the Amazon investment”. The CMA quickly concluded that would be the greater of the two evils in terms of the level of food delivery app competition on the UK market. In the short term it could also mean some consumers being cut off from food delivery as a choice during a period in which it is a service with a more crucial role than before the current lockdown.

Stuart McIntosh, who chaired the CMA’s independent inquiry group concluded:

“Faced with that stark outcome, we feel the best course of action is to provisionally clear Amazon’s investment.”

A final decision will be made on June 11th after the CMA has “canvassed views”.

A Deliveroo spokesperson added:

“This investment will help us to overcome immediate and long-term challenges, allow us to improve our service for customers, develop new innovations and offer greater choice.”

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