Facebook Under Review for Its Acquisition of Whatsapp

Talk about a delayed reaction. On Tuesday, the European Commission announced that it was investigating Facebook for providing ‘incorrect or misleading information’ to regulators during the social media company’s acquisition of the Whatsapp chat app in 2014. The announcement of the investigation came as something of a surprise to the company who was not available for comment.

At issue is a question regarding Facebook’s ability to match user accounts between the two platforms. In 2014, the company claimed it could not do this; however, investigators have reason to believe that Facebook had this ability as far back as 2012.

WhatsApp Facebook
Stock Photo:
MONTREAL, CANADA – FEBRUARY, 2016 – Whatsapp on the web under magnifying glass. Whatsapp is one of the most popular messengers. (dennizn / Shutterstock.com)

Part of the surprise is the fact that the European Commission (EC) originally approved the $22 billion Whatsapp acquisition without any conditions. While this did not raise any eyebrows at the time, many mergers and acquisitions go through without comment from regulators. The EC’s decision to review the transaction has raised the specter that the regulator may consider looking into other transactions as market conditions change.

Besides the potential omission of key information to regulators another issue which has popped up in Europe are changing privacy regulations and a recent European Court decision which voided safe harbor provisions – which govern data transfer between two parties.

A report in The Wall Street Journal pointed out that is it rare for a company to be ‘charged with making misleading statements during a merger-approval process in Europe.’ In fact, the EC has not charged a company with this offense since it changed the rules governing disclosure in 2004.

European Union (EU)
Stock Photo: FRANKFURT AM MAIN, GERMANY – AUGUST 7, 2015: Euro Sign. European Central Bank (ECB) is the central bank for the euro and administers the monetary policy of the Eurozone. (Angelina Dimitrova / Shutterstock.com)

Sources with knowledge of the case speculated the applicable fine could be as high as 1% of Facebook’s global revenue for 2015. If this is the case, then the company would be facing a $179 million dollar fine – though that amount could go down as the Euro continues weaken against the dollar.

As the company currently has close to $6 billion dollars in Free Cash, the fine is not expected to be a massive financial setback for Facebook.  Instead the importance of the proceeding is more about the precedent it sets for future, and in this case past, transactions which require regulatory approval.

This charge is not the end of Facebook’s legal issues in Europe.  The company is currently being investigated by data regulators in several European countries for an announcement that it would begin to merge Facebook and WhatsApp user data. While this issues is separate from Tuesday’s news, the two could be tied together as proof of an attempt to circumvent various rules and regulations.

Despite the news, shares of Facebook were trading up 0.29% just before the lunch bell on Tuesday.


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