The £6.2 billion takeover of a FTSE 100 cybersecurity specialist by an American rival is set for an in-depth regulatory investigation after officials warned that consumers faced a “worse deal”.
The Competition and Markets Authority said that Avast and NortonLifeLock were close competitors with few significant rivals, which meant that the acquisition of Avast could reduce competition in the cybersafety software market.
David Stewart, executive director at the regulator, said it was “vital” that people had access to competitive software when seeking to protect themselves and their families online.
After an initial investigation, the authority has called on the companies to submit proposals to allay its concerns or face a deeper phase two inquiry.
The setback prompted shares in Avast to fall by 13.3 per cent, or 85½p, to 559¾p yesterday, making the company the largest faller on London’s premier share index. Shares in Norton, which is listed on Nasdaq, dropped by 13.3 per cent, or $4, to close at $26.11 in New York last night.
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Norton said that the CMA’s findings were “surprising”, given that other regulators — including those in the United States, Germany and Spain — had cleared the deal. The Arizona-based company does not plan to make any remedies and said it remained confident that the deal would be approved.
“We believe that the merger can only benefit consumers across the globe, including in the UK, through increased innovation and greater consumer freedom and choice beyond Big Tech platform providers,” Norton said.
A phase two investigation would delay completion of the deal, which had been expected to close last month, from April 4 until “mid-to-late 2022”. The takeover, announced in August, would result in the delisting of Avast from the London stock exchange.
Avast, based in Prague, has built a customer base of more than 435 million users. It has attracted a large following through its “freemium” model, in which it provides basic protection for free and charges for more advanced security.
It was listed in London at 250p a share in 2018 and its stock price has been boosted by rising demand for cybersecurity.
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Norton, previously known as Symantec, has a larger premium business selling products to consumers to combat viruses, spyware and malware.
It is planning to pay for Avast in cash and shares and is offering two options to investors. Under the first, shareholders will receive 90 per cent of their payment in cash to value Avast at 608.4p a share, or £6.2 billion, based on Norton’s stock price on July 13, which was the day before news was leaked that the two companies were in deal talks. This represented a 20.7 per cent premium to Avast’s undisturbed share price. The second option would lead to investors being paid 69 per cent in paper, putting a 551.1p-a-share price on the business.
Avast’s founders, Pavel Baudis, who owns almost 25 per cent, and Eduard Kucera, who holds nearly 10 per cent, and other directors have pledged to take the majority share option.
An Avast spokesman said it had worked collaboratively with the CMA, which would continue in the next phase.
