Published by Chantal Lavoie on 24 October 2016
A recent EU merger notification which might have gone under the radar is Microsoft’s proposed acquisition of LinkedIn. The deal was notified to the European Commission on 14 October 2016 and the provisional deadline for a decision is 22 November. Microsoft announced in June 2016 its intention to acquire LinkedIn for USD 26 billion. This is Microsoft’s biggest acquisition ever. LinkedIn is the largest business-related social networking site. The acquisition price amounts to a 47% premium on LinkedIn’s last trading price before the deal was announced.
The deal would not appear to raise any horizontal or vertical issues. Indeed Microsoft does not have an important presence in social media and LinkedIn is not a player in the provision of operating systems and business software. Likewise, Microsoft and LinkedIn are not part of each other’s supply chain. Nevertheless, the parties do have in common a professional customer base.
The deal is in fact complementary. LinkedIn offers Microsoft access to a large data set of 400 million plus LinkedIn users. In turn, this could allow Microsoft to boost its position in different markets such as operating systems, cloud computing and customer relationship management (CRM). The European Commission will no doubt wish to consider whether the size and breadth of the data being acquired create potential for foreclosure and for creating or strengthening market power. The substitutability and accessibility of data from other sources such as Facebook or external sources will be important in assessing the impact on competitors.
The European Commission is reported to have sent questionnaires to third parties, seeking their views on the proposed acquisition. According to an article in Reuters, some of the questions focus on the nature of LinkedIn’s data, whether it is unique and whether it can be replicated. LinkedIn’s extensive data can currently be accessed by Microsoft competitors for use in a range of markets. Microsoft’s acquisition could prevent competitors in the future from accessing such data for their business. The acquisition is expected, for example, to improve Microsoft’s own CRM tool called Dynamics, which combined with LinkedIn’s sales navigator, should increase its ability to compete in the CRM market. It will also enable Microsoft to gain access to valuable information into LinkedIn users.
Other issues such as the competition effects of the acquisition in the social networks market and in online advertising may also be looked at by the European Commission. As regards online advertising, access to the LinkedIn pool of members could boost Microsoft’s ad revenues and improve its position in the market. In this respect, the acquisition could therefore give rise to a pro-competitive benefit as it will increase Microsoft’s chances of competing with Google. This could also serve Google’s interests in the context of the European Commission’s ongoing investigation into Google’s advertising-related practices and whether it is abusing its alleged dominant position in the online advertising market.
Overall, it is unlikely that the European Commission will block Microsoft’s acquisition of LinkedIn given the absence of any apparent significant horizontal or vertical competition concerns. The transaction is essentially of a complementary nature. Nevertheless the notification does provide the European Commission with the opportunity to review one of the largest data set acquisitions to date, and in particular to assess the potential competition effects resulting from the acquisition of extensive data and consider whether any conditions should be attached to an eventual clearance to address any eventual competition concerns.[1]
The notification also occurs as the European Commission is seeking comments on a proposal to amend its merger control thresholds to catch data-intensive transactions which do not meet turnover thresholds but where the asset transaction value is significant. Commissioner Verstager has also announced plans to propose a directive on big data by early 2017. Following on the footsteps of the German and French competition authorities which issued a Report on Competition Law and Data in May 2016, the European Commission is keen to issue its own views and direction on EU competition issues around big data. No doubt the ongoing merger investigation will serve as a good breeding ground for developing some of these ideas.
Microsoft’s last EU merger notification dates back to 2010 when it acquired Yahoo! Search business. The deal was cleared in Phase I without conditions. It was viewed by the European Commission as pro-competitive given that it improved Microsoft’s chances to compete in the internet search and search advertising space and therefore to offer an alternative force to Google.
The European Commission will decide by 22 November 2016 whether or not to approve the acquisition. Three options are available: (1) clearance without conditions; (2) clearance with conditions; (3) opening of a Phase II extensive investigation. The transaction has already been cleared by the competition authorities in the US, Canada and Brazil. As explained above and whilst the transaction does not appear on the face of it to raise any substantial EU competition concerns, the European Commission has shown recently a keen interest in big data and the competition concerns which can arise from the acquisition of companies with large datasets in digital markets. The scale and value of the data, the ability to foreclose data access to rivals as well as eventual efficiency/innovation benefits arising from the acquisition are all aspects which the European Commission may wish to consider in more detail. As a result we cannot discard that the European Commission would decide to open a Phase II investigation.
[1] Another big data merger has been announced recently , namely Verizon/Yahoo!, but no notification has been made to the European Commission at the time of writing. The delay is presumably due to the recent reports of Yahoo accounts having being hacked in 2014, information unknown to Verizon at the time the deal was agreed.