Shutterstock (SSTK) shares plunged more than 30% in premarket trading on Wednesday after Getty Images abandoned its planned $3.7 billion merger with the company, ending a deal that was expected to create one of the world’s largest licensed visual content providers.

Getty Images shares were also lower, falling more than 5% in premarket trading following the announcement.

The companies said the merger was terminated after Britain’s Competition and Markets Authority (CMA) required Shutterstock to divest its editorial business as a condition for approving the transaction.

UK regulator’s conditions derail deal

Getty and Shutterstock first announced the all-stock merger in January last year, positioning the combination as a way to strengthen their businesses amid rapid changes brought about by generative artificial intelligence.

The CMA granted conditional approval in May but required Shutterstock to sell its editorial division after concluding that the combined company would reduce competition in supplying editorial images to UK media organizations.

The regulator said Shutterstock was one of the few meaningful competitors to Getty in the editorial content market and warned that the merger could reduce customer choice and ultimately lead to higher prices.

Getty said in a regulatory filing on Tuesday that it would officially terminate the merger after the extended July 6 deadline.

The company also said it plans to redeem its 10.5% senior secured notes due in 2030 and retain a financial adviser to evaluate strategic financing alternatives.

Getty, which competes with Reuters and The Associated Press in supplying editorial photographs and videos, said its board would also explore broader financing options.

AI competition continues to reshape the industry

The merger had been pitched as a way to generate annual operating and capital expense savings of between $150 million and $200 million while strengthening the companies’ ability to compete with technology firms developing AI-powered image generation tools.

The combined company was expected to have greater scale to respond to rapid changes in the visual content industry as artificial intelligence increasingly transforms how images are created.

However, analysts questioned whether the merger would have been enough to offset the structural challenges facing the sector.

“We are not convinced that scale would have done more than stave off competitive pressures for a little while longer, but without the scale that the merger would bring, the outlook for each looks even more difficult,” said Luke Stillman, managing director at trend advisory firm Madison and Wall.

Both companies have faced growing competition from AI image generators that allow users to create visual content more cheaply and quickly than purchasing licensed images.

Shutterstock faces additional pressure

The failed merger comes at a difficult time for Shutterstock.

In April, the company missed Wall Street’s first-quarter revenue expectations after sales fell 17.9% year over year to $199.2 million, reflecting weaker new customer acquisition.

Investor sentiment had improved earlier this month after Getty announced a display agreement with OpenAI, allowing Getty Images’ content to be displayed within ChatGPT to enhance visual responses.

The partnership lifted Shutterstock shares by around 20% on expectations that closer ties between Getty and OpenAI could ultimately benefit the planned merger.

Shutterstock shares tumble after Getty Images abandons its $3.7 billion merger following UK antitrust demands to divest Shutterstock’s editorial business.

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