Amazon's massive investment in food delivery startup Deliveroo hits a major roadblock as UK regulator decides it could harm competition

AP Photo/Pablo Martinez Monsivais

Jeff Bezos threw his weight behind the US military.

• Amazon's investment in UK food delivery startup Deliveroo has hit a major snag after the UK competition regulator decided the deal could seriously harm competition in the space.
• Amazon led a $575 million investment into Deliveroo in May, triggering an initial competition probe and a demand from the UK regulator that the two companies remain separate while it investigated.
• The Competition and Markets Authority announced Wednesday it was proceeding with an in-depth investigation into the investment to determine how the deal could hurt competition.
  
• Amazon and Deliveroo have five days to try to head off the probe.
• Visit Business Insider's homepage for more stories.

Amazon's investment in a British food delivery startup has stalled due to the UK's antitrust watchdog announcing an "in-depth" investigation into whether the deal hurts competition.

In May Amazon led a whopping $575 million investment round in Deliveroo, a major rival to Uber Eats in the UK.

The Competition and Markets Authority (CMA) launched a preliminary investigation into the investment in June. It announced a formal "phase 1" investigation in October, and on Wednesday confirmed it was proceeding with a "phase two" in-depth investigation.

The CMA is worried the deal may damage competition in two ways.

1. The deal could prevent Amazon from re-entering the online food delivery market. "Currently, there are only a small number of companies that act as the middle-man between restaurants and customers, and Amazon offered this service in competition with Deliveroo until 2018, when it exited the market," the CMA notes. The CMA also found internal Amazon documents suggesting the tech giant was seriously considering re-entering the market.
2. The CMA is worried the combined strength of Amazon and Deliveroo would prevent smaller companies entering the market. "Although several supermarkets and online food platforms are experimenting with convenience grocery delivery, Amazon and Deliveroo - which both have UK-wide delivery networks to support their operations - are two of the strongest players in this market at present," the CMA said.

"If the deal were to proceed in its current form, there's a real risk that it could leave customers, restaurants and grocers facing higher prices and lower quality services as these markets develop. This is because the significant competition which could otherwise exist between Amazon and Deliveroo would be reduced," CMA executive director Andrea Gomes da Silva said in a statement.

The regulator noted in its press release that while Amazon's stake would not make it a majority shareholder the deal would still allow it to have sway over Deliveroo's business strategy.

"The companies now have five working days to offer legally-binding proposals to the CMA to address the competition concerns identified. The CMA would then have five working days to consider whether to accept the offer instead of referring the case to an in-depth investigation." the CMA said.

Founded in 2013 in London by former banker Will Shu, Deliveroo now operates in operates in over 500 cities in 14 countries. Its last valuation pegged the startup at $2 billion, although the Amazon investment is thought to have pushed that up to roughly $4 billion. Deliveroo has not confimed this.

"Deliveroo has been working closely with the CMA and will continue to do so," A Deliveroo spokesperson told Business Insider.

"We are confident that we will persuade the CMA of the facts that this minority investment will add to competition, helping restaurants to grow their businesses, creating more work for riders, and increasing choice for customers. Deliveroo is a British company operating right across the country and this investment will be particularly beneficial to the UK economy."

Amazon was not immediately available for comment.

This story is developing, check back for updates...

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