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May 10, 2012 7:13 pm
A competition probe into Facebook’s $1bn acquisition of photo-sharing service Instagram threatens to postpone the closure of the deal beyond the second quarter, the target set by the company in its initial public offering documents.
The Federal Trade Commission has launched the investigation, according to two people familiar with the matter, and has already begun collecting information from at least two of the social network’s largest competitors: Google and Twitter. The process could also further slow Facebook’s already lagging mobile strategy.
The competition probe is routine for any deal more than $68.2m. In this case it could take six to 12 months, according to several experts. But Facebook said in its IPO documents last month that it expected the deal to close in the second quarter.
“That’s terrifically optimistic,” said David Balto, a former policy director at the FTC who now works as an anti-trust lawyer.
Competition experts expect that the Instagram merger will ultimately be approved, but they believe regulators will apply close scrutiny to the deal because of the steep price that Facebook paid and the high profile of the companies.
“They’re going to want to take some months to investigate and understand the market and other players,” Mark Lemley, a professor at Stanford Law School, said. “And there may be more parties with an interest in submitting information.”
Facebook has acknowledged that its mobile strategy is an area of weakness, which is likely to have increased the pressure on it to set an ambitious timeline as it faces questions from analysts and potential investors.
“They’re assuming nothing will happen, which is the face you want to put to investors,” said Alan Webber, an analyst with the Altimeter Group. “If they don’t dig too deep, yeah it’s possible it could go that fast. I don’t think that’s likely.”
Facebook declined to comment.
The company is not permitted to integrate any aspects of Instagram’s technology, or its staff who have expertise in mobile app development, until the deal is approved. The longer the approval takes, the longer Facebook must wait to see any benefits of the merger.
That could be damaging for Facebook in such a fast-moving industry, Mr Lemley said.
Facebook has said it would pay Instagram a $200m termination fee if governmental authorities prevented the deal from being completed.
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