EBay’s decision to sell Gumtree to Adevinta could reduce competition and increase fees for selling goods online in the U.K., according to the country’s Competition and Markets Authority (CMA). The Gumtree sale is part of a £6.5 billion ($9.2 billion U.S.) deal to sell EBay’s Classified Group (ECG) to Adevinta, which would create the world’s largest classified operation.

Adevinta operates Shpock and ECG runs Gumtree. With the sale, agreed in July, EBay will acquire a 33.3% voting stake in Adevinta and positions on Adevinta’s board, which could enable EBay to influence how Shpock and Gumtree’s businesses are run, the CMA said. Both Gumtree and Shpock are free to use for most advertisers. EBay charges a fee for listings.

This intervention by the U.K.’s competition regulator shows it’s most concerned about a missed opportunity to increase competition in the U.K. classified sector against EBay. This is an unusual regulatory perspective, because in most countries the only real concern would be whether Gumtree and Shpock materially reduce competition. The CMA is less concerned about this than it is about the fact that not selling Gumtree to someone else would have increased competition.

In U.K. classified markets, Facebook and EBay are the dominant forces. The regulator has now made it clear that it would like to see more competition against these two giants. The proposed deal allows EBay to retain some control of Gumtree, so the regulator is concerned that the sale has not created a stronger competitor to EBay in the U.K. It would have preferred to see a sale to someone independent of EBay. The deal also faced regulatory hurdles in Austria, though Germany’s Competition Authority has cleared the merger.

Having reviewed EBay documents when the decision was made to sell ECG to Adevinta, the CMA thinks there was a realistic chance EBay could have sold Gumtree to a different buyer without retaining its influence on the business, as it does under this proposed deal. This would have meant Gumtree became an independent competitor to EBay’s marketplace.

The CMA’s phase 1 investigation concludes that the merger could reduce competition between Shpock, Gumtree and EBay’s marketplace, with only Facebook Marketplace remaining as a significant competitor, which could reduce consumer choice, increase fees or lower innovation in online marketplace platforms.

The CMA has given both companies until Feb 23 to provide legally binding remedies to resolve its concerns. It will then decide within five working days whether to accept the solutions presented or to refer the deal to an in-depth investigation.

“There is a realistic chance that without this deal, Gumtree and Shpock would have been direct competitors to EBay, which is by far the biggest player in this market,” said Joel Bamford, CMA’s senior director of mergers.

In a statement, EBay and Adevinta said they do not agree with the CMA’s reasoning, but will work constructively with the CMA to find a suitable resolution and both companies “remain excited about the proposed transaction and look forward to closing.”

EBay said in 2019 EBay Classified Group’s U.K. business accounted for less than 10% of its consolidated revenues and Adevinta’s U.K. business accounted for only 1% of its consolidated revenues.

The deal would create the world’s biggest marketplace with annual revenues of $1.8 billion. Adevinta was spun off from Norwegian publishing group Schibsted in 2019. Adevinta beat rivals including Naspers and Prosus, even though they offered EBay more money in their bids.

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