In line with the increasingly tough stance taken to “jumping the gun” in merger proceedings by other competition authorities, the UK Competition & Markets Authority (CMA) recently imposed a penalty on PayPal for failing to comply with an Initial Enforcement Order (IEO) issued by it pending its investigation into the US payments giant’s acquisition of iZettle, a Swedish financial technology company.
Following PayPal’s notification of the merger in September 2018, the CMA issued an IEO requiring PayPal to maintain and operate the enterprises separately and refrain from any action which might impair independent competition of the two entities pending its investigation into the legality of the acquisition. A derogation, however, was granted permitting the integration of the businesses in non-UK territories.
Pending the validity of the IEO, the CMA found that PayPal contacted UK potential customers as part of cross-selling pilot campaigns conducted in France and Germany. The CMA stated that of a sample of 221 customers contacted, a total of 76 customers had a UK online presence (had .co.uk or en-gb domains specifically targeting the UK market), including 16 large international enterprises.
According to the CMA, “by contacting UK potential customers PayPal risked impairing the ability of iZettle and Paypal to compete independently … risked undermining the separate sales or brand identities … and, by directing potential UK customers to the iZettle offering, PayPal was not operating the customer lists of the two businesses in the UK separately”. In its view, the CMA explained that this resulted in UK potential customers possibly perceiving the two businesses being integrated, thereby risking weakening the PayPal brand and removing a source of potential customers for PayPal in UK and providing iZettle an additional source of potential customers which it would not have otherwise had access to, had it been operating independently of PayPal.
The CMA imposed a penalty of £250,000, substantially below the maximum possible penalty of 5% of global turnover of enterprises owned or controlled by PayPal, with mitigating factors including the fact that PayPal stopped the launch of another wave of pilot campaigns upon CMA raising concerns.
Full investigation notices and reports at https://www.gov.uk/cma-cases/paypal-holdings-inc-izettle-ab-merger-inquiry