The biggest deal in Microsoft’s history is set to become a test case for the heads of US antitrust agencies, who have vowed to take on the market power of big tech.
Microsoft is braced for intense regulatory scrutiny as its agreed $75 billion acquisition of video game maker Activision Blizzard comes under scrutiny by progressives appointed to key antitrust posts in the Biden administration. They include Lina Khan of the FTC (Federal Trade Commission) and Jonathan Kanter of the Department of Justice.
“Microsoft is fully aware that it won’t be easy, even if there isn’t a clear antitrust violation,” said one person with direct knowledge of how the company’s M&A team prepares to get the deal approved.
The tech group’s fear is that Khan will use this transaction to prove he is serious about controlling big tech, the person added. Activision investors seem to share that concern, as the company’s shares are trading at a 13.5% discount to Microsoft’s $95 per share cash offer.
“This is an ideal opportunity for antitrust agencies to act on their leaders’ view that the courts have been too lenient in authorizing consolidations in many industries, especially technology,” said Bill Baer, ​​visiting fellow at the Brookings Institution and former head of the antitrust division of the DoJ (Department of Justice).
The FTC and DoJ declined to comment on whether they will investigate the megamerger. It was also unclear which agency would potentially investigate the deal.
Bobby Kotick, chief executive of Activision, played down the risk of regulatory backlash, as tech giants like Apple and Google are also exploring digital games.
Responding to requests for regulatory action, Microsoft said the games market would remain “diversified and fragmented” after the deal and criticized some of its biggest tech rivals.
“Mobile game distribution goes through Apple and Google, who make more money from consumers who buy games than the studios and developers who make the games,” Microsoft said.
The company added that it “had no intention of taking games off existing platforms, and our strategy is player-centric — players should be able to play whatever they want, wherever they want. We believe this acquisition will only increase competition, but ultimately , it is up to the regulators to decide”.
Antitrust experts, however, say federal agencies will be looking closely, given their leaders’ focus, the size of the acquisition and the potential harm to other players in this industry.
Khan says the deterrent provided by antitrust action is “key” in competition law enforcement. The FTC chairman on Wednesday told CNBC that illegal mergers have taken place in the past “because the consequences of proposing these deals were not significant … the kind of deterrence we need to see to change the game, not we are seeing”.
The Microsoft deal was announced on Tuesday, just hours before the FTC and DoJ said they would seek public input on overhauling merger rules to clamp down on illegal deals as transactions surge. Merger orders more than doubled between 2020 and 2021, the agencies said.
Herbert Hovenkamp, ​​a professor at the University of Pennsylvania law school, said it was too early to predict the complexity of a potential legal case against the transaction, but that “new merger laws [são] done in tense situations, not in easy ones”.
An investigation of the acquisition would signal that the agencies are keen to apply the level of scrutiny to Microsoft that they have so far reserved for other tech companies.
“Big tech has been in the spotlight for the past couple of years,” said Michael Carrier, a professor of law at Rutgers University. “Microsoft seems to avoid the crosshairs, but in a deal like this they could find themselves in that position.”
An investigation would mark the biggest antitrust lawsuit against Microsoft since US authorities sued the company two decades ago in what became known as the “antitrust case of the century”. The government won after accusing the group of using its Windows monopoly to crush Web browser pioneer Netscape.
“The question is whether we would have seen the growth and success of these next-generation companies on the Internet if the Department of Justice hadn’t taken action,” Khan told CNBC of the 1998 lawsuit. oxygenate the market and ensure that these opportunities exist.”
The agreement between Microsoft and Activision would not represent the kind of direct market share concerns that cause most antitrust claims. Instead, how a “vertical merger” combining the software group’s distribution systems and the video game maker’s content would present a more difficult case.
A challenge from antitrust agencies could help them shape rules on vertical mergers — one of the issues they seek information about — after the FTC last year suspended 2020 guidelines for such types of mergers as too lenient.
If agencies sued to prevent the transaction, they could argue, for example, that Microsoft could “disadvantage competitors” by making Activision’s popular Call of Duty or World of Warcraft games play only on its Xbox and not on Sony’s PlayStation, Carrier said.
While cases against vertical mergers are among the most difficult to win, they have started to increase in recent years with tougher antitrust enforcement. “This will be an interesting test case to see if agencies are willing to challenge a merger that introduces these vertical issues in the video game industry,” Carrier added.
A recent action against vertical mergers by US agencies was unsuccessful. In 2019, the Justice Department failed to block AT&T’s $80 billion acquisition of Time Warner after a federal appeals court ruled against the department.
But Khan appears unfazed by the prospect of the FTC losing in court and told CNBC Wednesday that “even if it’s not a decisive case, even if there’s a risk of losing, there can be huge benefits to taking that risk (.. .) You lose all the bids you don’t make”.
The $75 billion acquisition could boost the growing cooperation between regulators on both sides of the Atlantic, which Margrethe Vestager, the EU’s chief competition officer, said was triggered by Khan’s appointment to the FTC.
Baer said: “I would expect, in particular, Europe, the US and the UK to closely coordinate their analysis and any possible outcomes… [para] these types of mergers that have worldwide implications”.
Having escaped regulatory scrutiny for years in Brussels, Microsoft could face lengthy investigations as EU officials closely scrutinize its acquisition, several people with direct knowledge of the transaction said.
EU regulators are expected to investigate potential anti-competitive issues based solely on the volume of the deal, one consultant said. “It’s just too big to ignore,” this person said.
Translated by Luiz Roberto M. Gonçalves
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