Don’t be too excited about Facebook breaking away from Instagram or WhatsApp in the antitrust stream

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The government consortium suing Facebook Inc. for anti-competitive behavior led to a lot of talk about the Instagram and WhatsApp split on Wednesday, but it’s a pretty tough legal battle that is unlikely.

The Federal Trade Commission and 48 U.S. Attorneys General have filed antitrust lawsuits against Facebook FB,
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Wednesday, claiming that the world’s largest social network has committed illegal and anti-competitive acts that have bankrupted many of its rivals. One of the remedies sought in the lawsuits is to force Facebook to part ways with Instagram and WhatsApp, two companies that Facebook bought in their early days for billions of dollars.

A few experts, however, have pointed out some of the weaknesses of the lawsuits and the possibility of a break-up.

Breaking up Facebook appears to be a nuclear option or a negotiating tactic on the part of prosecutors seeking to launch negotiations forcefully. It seems highly unlikely that these cases will lead to the dissolution or split-up of companies that were acquired years ago.

“The courts won’t buy this,” wrote Colin Sebastian, analyst at Robert W. Baird, in a note to clients. “Facebook has developed these services using its own technology and innovation, they are largely integrated on the back-end, and there is obviously intense competition from TikTok, Snap SNAP,
-1,70%,
Twitter TWTR,
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Pinterest PINS,
-2,07%,
Discord, Talking, among others.

Donald Polden, a professor at the University of Santa Clara School of Law who focuses on antitrust and federal securities law, agrees.

“The government has a tough business,” Polden said in a telephone interview. “It won’t be easy. It was the same idea I had on [the case against] Google GOOGL,
-1,85%

GOOG,
-1,89%,
because people love the service and it’s free. You don’t have a situation where the price is higher and it’s harder to get. It is largely motivated by complaints from competitors. ”

Polden also noted that the split of Facebook’s two biggest acquisitions, Instagram and WhatsApp, will be difficult to achieve.

“There have been instances where there have been divestments from the previously acquired company, but these are stand-alone companies, they operate as a division, as stand-alone assets,” Polden said.

In the case of the Instagram photo-sharing app, for which Facebook paid $ 1 billion in 2012, and the WhatsApp messaging app, for which Facebook paid a colossal $ 19 billion in 2014, both apps are now integrated with Facebook and share a lot of feedback. end software. Facebook does not split income for any of its subordinate properties and has sought to link them more recently, including reporting their user growth under the umbrella of the Facebook “family”.

Polden pointed out that the government’s time to protest a merger is usually before it happens, as the FTC has been fortunate enough to do in reviews before the purchases are approved.

“Usually, these problematic aspects of a business acquisition activity are addressed before the merger, as part of the pre-merger assessment. The government says “we will only approve this merger if you get rid of this insurance business” and so on. Polden said. “But those [forced] spin-offs occur where there is a nearly independent business, and it has been rejected in cases where it is not possible to separate the assets of the acquiree and the acquirer. ”

Facebook bought the two companies in their early days, and over the past few years has increasingly integrated them into the main Facebook app, while maintaining them as separate apps. But their software and user bases are now so closely linked that Facebook is sure to argue that such a separation would be nearly impossible and damage the main product.

For more: Learn more Facebook’s deal to buy Instagram in 2012

The most likely scenario that will emerge from what should be a long and winding legal road will be that Facebook will have to pay a hefty fine and the government will want to revisit any future acquisitions.

The government and state AGs should smash Facebook in court for a ruling that would force any sort of disruption. Their case, at least for now, doesn’t look strong enough, and it’s not like Facebook is being represented by Saul Goodman. The company faces a long, expensive and difficult legal battle, but in the end, the likelihood of an Instagram and WhatsApp split is low.

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