Facebook Probe Targets Its Deal Strategy -- WSJ

Date : 08/02/2019 @ 8:02AM
Source : Dow Jones News
Stock : Facebook Inc (FB)
Quote : 188.08  1.86 (1.00%) @ 12:35AM

Facebook Probe Targets Its Deal Strategy -- WSJ

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By Brent Kendall, John D. McKinnon and Deepa Seetharaman 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 2, 2019).

The Federal Trade Commission is examining Facebook Inc.'s acquisitions as part of its antitrust investigation into the social-media giant, seeking to determine if they were part of a campaign to snap up potential rivals to head off competitive threats, according to people familiar with the matter.

The company's acquisition practices are a central component of the FTC probe, the people said. Facebook disclosed the FTC's investigation in its earnings announcement last week but provided few details.

FTC investigators are examining whether the company and its CEO, Mark Zuckerberg, purchased technology startups to keep them from challenging Facebook's empire, the people said, some of whom added that the FTC has begun reaching out to the founders of such companies.

The tech giant has acquired about 90 companies over roughly the last 15 years, according to data compiled by S&P Global. Among those companies are the photo-sharing app Instagram and the messaging service WhatsApp, which bolstered Facebook as a dominant force in social media and messaging.

Facebook didn't immediately respond to a request for comment. The company said last week that the FTC was investigating "in the areas of social networking or social media services, digital advertising, and/or mobile or online applications."

In congressional testimony last month, Matt Perault, director of public policy at Facebook, told a House antitrust subcommittee that the company's acquisitions have fueled innovation and brought together firms of complementary strengths.

Companies purchased by Facebook "have had more opportunity to innovate as part of Facebook than they would have on their own -- enhancing users' experience and resulting in more choice for more people overall, not less," Mr. Perault said.

An FTC spokeswoman declined to comment. The investigation comes on the heels of a separate case in which the commission fined Facebook $5 billion for alleged privacy missteps.

One acquisition that could come under scrutiny was the 2013 takeover of Onavo Mobile Ltd. Facebook used Onavo's behavior-tracking technology to identify and target fast-growing companies as potential purchases or to scope out new product categories, The Wall Street Journal reported in 2017. Facebook used data from Onavo in deciding to buy WhatsApp. Documents U.K. lawmakers released late last year confirmed Onavo's importance to Facebook's strategy. Facebook eventually shut down the controversial app.

Other tech giants, such as Alphabet Inc.'s Google, also have been on buying sprees. The top five tech firms have made more than 400 acquisitions over the last decade, a U.K. blue-ribbon antitrust panel said in March.

The FTC has for months signaled its interest in whether tech companies are squelching competition by systematically buying startups that could one day challenge them. When the commission formed a task force in February to examine potential antitrust violations in the tech industry, Bruce Hoffman, director of the FTC's bureau of competition, said the issue was ripe for exploration.

"This is a completely legitimate and real theory of competitive harm," he said last year, while stressing that the FTC would need "an evidentiary and economic basis" for determining that an acquired startup really could have become a significant competitor.

Mr. Hoffman acknowledged the potential negative consequences of cracking down on such acquisitions: Large tech firms may be able to move startup technologies to market more quickly, and capital markets for startups could shrink if the opportunity to be purchased by a big tech company is constrained, he said.

If the FTC were to identify antitrust issues with any of Facebook's past acquisitions, the commission could pursue a range of remedies, from seeking a spinoff of certain acquisitions to restricting Facebook's conduct with some of the assets it has acquired. Any such effort could lead to litigation.

The FTC's investigation isn't the only antitrust scrutiny the company faces. The Justice Department said last week that it was launching a broad review of whether and how online platforms have engaged in practices that reduce competition, stifle innovation or otherwise harm consumers. That includes social media, the department said.

The reviews by both U.S. antitrust agencies signal the federal government is training significant firepower on Facebook, whose recent $5 billion FTC fine represented an unprecedented privacy settlement. State attorneys general and European regulators also are looking into competition issues around Facebook.

U.S. antitrust enforcers typically challenge mergers and acquisitions that propose to combine major head-to-head competitors. But some critics argue the government has focused too much on the current size of tech takeover targets and failed to consider how they could grow. Some critics also say regulators are too sympathetic to the idea that any dominance by today's tech giants is tenuous because high-tech markets change so rapidly.

When the FTC allowed Facebook to acquire Instagram in 2012, there was discomfort within the commission about possible antitrust implications, according to people familiar with the matter. But FTC officials were concerned they might not win an antitrust case in court, the people added. The FTC blessed the WhatsApp purchase in 2014.

Some tech acquisitions by Facebook and other firms wouldn't necessarily have been subject to federal scrutiny at the time the deals were reached, because they were smaller in monetary value and didn't require government approval.

Policy makers' calls for greater antitrust examination have been growing world-wide. In March, Rep. David Cicilline (D., R.I.), who heads the House antitrust subcommittee, said in a letter to the FTC that Facebook's Instagram and WhatsApp purchases warranted particular scrutiny.

The U.K. panel on online competition recently found that the largest digital companies have made extensive use of mergers, concluding that "a minority of acquisitions are likely to have been anticompetitive."

Write to Brent Kendall at brent.kendall@wsj.com, John D. McKinnon at john.mckinnon@wsj.com and Deepa Seetharaman at Deepa.Seetharaman@wsj.com

 

(END) Dow Jones Newswires

August 02, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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