The Competition and Markets Authority (CMA) said that its decision to refer the case for a 'phase two' investigation came after PayPal had "chosen not to offer proposals" to address its concerns about the $2.2 billion takeover deal which completed in September.
Late last month the CMA announced that it had concerns that the deal "has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom".
The CMA warned then that businesses could be forced to pay higher prices, or that they will receive a lower quality service, in the market for the supply of mobile point of sale devices as a consequence of the companies merging. It also highlighted the "potential impact" the deal could have in the emerging market for ‘omni-channel’ payment services.
At that time the CMA said it would open a 'phase two' investigation into the merger "unless the parties offer acceptable undertakings to address these competition concerns". It has now said that PayPal has elected against bringing forward proposals to do so.
In a statement, PayPal said it is "working cooperatively with the CMA and is committed to demonstrating to the panel of experts that the market is, and will remain, competitive".
Competition law experts Alan Davis and Robert Eriksson of Pinsent Masons, the law firm behind Out-Law.com, previously said that the CMA's decision to intervene in this case suggested other tech deals in the UK in future will also fall subject to more detailed scrutiny.
The legal experts said that businesses that complete mergers and acquisitions before notifying UK authorities of those deals risk being forced to sell off the new parts of their company.
Eriksson said: "The UK has a voluntary merger notification system, which means that mergers that meet the UK thresholds do not have to be pre-notified before completion takes place. However, it is often prudent to do so particularly if the merger could result in competition concerns in relation to the UK market, which can be the case even where a target is an international business with the majority of its sales outside the UK."
Davis said: "The risk is that if the international transaction is completed without first obtaining clearance from the CMA in respect of the UK part of the merger, the CMA has powers to investigate the impact in the UK of the transaction and prevent further integration of the merging businesses in the UK pending clearance. Following a 'phase two' investigation, where the CMA concludes that it has serious competition concerns, the UK part of the merger could ultimately be blocked which means that PayPal could be required to sever and divest itself of iZettle’s UK business."
The CMA said that "an independent group of CMA panel members" will conduct the phase two investigation in this case. The deadline for the CMA to complete its investigation and issue a final decision is 21 May 2019.