Time for the Government to Clarify the Antitrust Rule

On January 18, Microsoft announced that it reached an agreement with Activision Blizzard, a leading video game developer, to acquire the latter for $95 a share/$69 billion in cash. The Federal Trade Commission (FTC), led by its new Chairwoman Lina Khan, will review the deal for antitrust approval. While the year is still young and the deal’s $69 billion price tag is by no means record-breaking, if approved and completed, it would be a landmark deal to its far-reaching implications on merger and acquisitions (M&A) for years to come.

M&A is an essential business growth strategy alongside organic growth. On a macro level, it can also help improve business efficiency and encourage innovation. This is no more evident than in the health care industry between biotech companies and drug manufacturers. The former specializes in developing life-saving drugs, while the latter focuses on making these new drugs available and affordable to all patients. M&A between them speeds up new drug developing processes, as it is far more efficient than everyone trying to do it by themselves. On the other hand, M&A can have its ugly side. M&A deals can stifle competition, and some can cause mass layoffs. To balance between the potential benefits and damage of M&A, antitrust reviews by government agencies are absolutely necessary to ensure common good for the society.

Under normal circumstances, the Microsoft/Activision Blizzard acquisition would be a done deal. Shareholders of both companies overwhelmingly support the deal and there should be little monopolistic threat. Gaming is still quite a fragmented industry, and this is very much a vertical integration deal (Microsoft being the distributor, while Activision Blizzard is the developer). There are several fast-growing, larger competitors in the gaming industry such as Tencent, Sony, and Apple than would exist with this newly combined company. However, antitrust decisions by government regarding M&A in recent years have been anything but normal. The most infamous one has to be the $85 billion AT&T/Time Warner deal during the Trump administration. The deal was initially blocked by the Department of Justice almost purely driven by Mr. Trump’s distain of CNN, a division of Time Warner. Eventually the case was overthrown by a federal judge and the deal went through. The current anxiety of corporations seeking M&A, interestingly, seems to center around the new FTC chairwoman Lina Khan.

Ms. Khan is a new face and stand-out among Washington’s bureaucrats and career politicians. She is only 32 years old and was an Associate Professor at Columbia Law School prior to becoming the FTC Chairwoman. Ms. Khan is an antitrust expert and rose to fame for her publication of “Amazon’s Antitrust Paradox” in 2017 while she was still a student at Yale Law School. Most assume she will be overly tough on big corporations regarding M&A, especially Big Tech. Amazon and Facebook have already filed motions asking her recusal from their current pending and future potential antitrust cases, which is highly unlikely to succeed.

As the biggest “victim” of the government’s antitrust action in the past and one of the only two remaining AAA-rated companies in U.S. (the other being Johnson & Johnson), Microsoft presented a compelling case to clear the antitrust review. Approved or not, this deal will force the government to clarify the sometimes arbitrary and politically influenced antitrust rules and restore order in its decision-making process.
 

Source:
Stefania Palma, James Fontanella-Khan, Javier Espinoza, and Richard Waters, “‘Too big to be ignored’: Microsoft-Activision deal tests regulators,” Financial Times, January 20, 2022, https://www.ft.com/content/f30452bd-bf13-4841-8038-264a83c9295d