U.K. Says Deliveroo Needs Amazon Funds to Avoid Going Bust

(Bloomberg) -- The coronavirus outbreak is hurting food delivery firm Deliveroo so badly that the U.K.’s tough-talking merger watchdog said the startup would go out of business without an investment lifeline from Amazon.com Inc.

The Competition and Markets Authority is prepared to approve the minority investment by the U.S. company after finding that the possible exit of Deliveroo would be worse for competition than allowing the deal to proceed.

The pandemic is leading to a “significant decline” in revenue at Deliveroo as restaurants are forced to shut, the CMA said Friday in a statement that outlined its provisional findings. The $575 million in funding led by Amazon is the only realistic investment available to Deliveroo, it said.

“These wholly unprecedented circumstances have meant reassessing the focus of this investigation,” the CMA’s Stuart McIntosh said in the statement. Without the additional investment, “it’s clear that Deliveroo would not be able to meet its financial commitments and would have to exit the market.”

The regulator had been considering how hard of a line to take against the companies, whose employees have been designated as critical workers by the government and act as a potential lifeline to vulnerable people amid the coronavirus pandemic.

Britain is one of the worst hit countries by the spread of the virus, and the government has urged non-essential businesses, including many restaurants, to remain closed.

Immediate Challenges

“The unprecedented health crisis we all face has disrupted businesses across the country,” Deliveroo said in a statement. “This investment will help us to overcome immediate and long-term challenges, allow us to continue to improve our service for customers.”

Deliveroo’s argument that it was likely to fail without the investment is a notoriously difficult position to take with a regulator, said Sarah Long, a competition lawyer at Euclid Law. The unprecedented outbreak “meant a rethink of the CMA’s investigation was required,” she said.

The regulator’s decision moves Amazon closer to regaining a presence in the U.K. food delivery market. The watchdog had originally warned that the purchase could hurt competition by discouraging the U.S. company from re-entering the market through another deal.

It shuttered its Amazon Restaurants delivery unit in 2018.

The CMA stunned investors by starting an in-depth probe into the transaction with Deliveroo. The deal doesn’t include a controlling stake, prompting warnings from investors and startup groups that the regulator’s intervention risked starving firms of capital at the very moment they need it most.

The regulator, which has been taking a tougher line on deals by the largest technology firms, had been seeking concessions from Amazon to get approval. Bloomberg reported in March that the CMA wanted Amazon to relinquish a board seat or lower the size of its stake in Deliveroo.

The CMA said Amazon was perceived internally within Deliveroo as a “credible potential future acquirer.”

Even before instigating a formal second-phase probe, the CMA was interviewing Amazon’s senior management. That came after the regulator found internal documents indicating that the U.S. company had also considered other plans to re-enter the British market through the purchase of another platform.

©2020 Bloomberg L.P.