The planned takeover of cyber security firm Avast (AVST) by NortonLifelock of the US is in serious doubt after the UK’s competition watchdog raised consumer choice concerns and launched a probe into the potential £6 billion cash and shares deal.
The UK’s Competition and Markets Authority said on Wednesday (16 March 2022) that it plans to launch an in-depth phase two investigation unless the two companies can offer a clear solution to address its anti-competition concerns.
This looks unlikely, and investors have rushed to sell Avast stock in early trading, sending the share price plunging 14% to 558p, and implying a market value of around £5 billion.
LITTLE ROOM TO MANOEUVRE
NortonLifelock, which has already said it does not intend to offer any phase one remedies, seems to have little to offer the CMA, throwing a spanner in the works at the final regulatory hurdle.
The UK’s CMA was the last of the regulators to deliberate and comes shortly after the Spanish antitrust regulator cleared the merger.
‘We assume the primary issue is the combined size of the consumer direct antivirus product, which makes up 86% ($811 million) of Avast’s revenue, so divesting a smaller non-core division of the business would not solve this primary concern,’ said Megabuyte analyst Indraneel Arampatta.
Avast has about 435 million antivirus consumer customers worldwide under its own products and the AVG brand it acquired in 2016. NortonLifelock has around 500 million of its own consumer customers globally.
DECISION COULD TAKE MONTHS
In theory, Avast could offer to offload large swaths of its antivirus customers to try to appease the regulator, yet such a move would make it a far less attractive acquisition for NortonLifelock.
‘It’s hard to say exactly what the outcome of this investigation might be, but it has already pushed back the mid-2022 expected completion date to mid-to-late 2022, although it may be later still with these investigations historically taking at least 20 weeks and usually the full 24 weeks, with no option to speed up the process,’ said Arampatta, leaving Avast shareholders in no-man’s land for months.
