{"id":11883,"date":"2023-05-22T00:26:12","date_gmt":"2023-05-22T04:26:12","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/microsofts-activision-deal-has-split-regulators-thats-bad-news-for-big-tech\/"},"modified":"2023-05-22T00:26:13","modified_gmt":"2023-05-22T04:26:13","slug":"microsofts-activision-deal-has-split-regulators-thats-bad-news-for-big-tech","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=11883","title":{"rendered":"Microsoft’s Activision Deal Has Split Regulators. That’s Bad News for Big Tech."},"content":{"rendered":"

\n Microsoft\u2019s<\/span>
\n proposed $69 billion acquisition of
\n Activision Blizzard
\n has divided international regulators, which is not good news for U.S. companies keen on M&A.<\/p>\n

The split complicates the prospects for future deals and has the potential of curbing value-adding acquisitions for some of the world\u2019s biggest technology companies.<\/p>\n

\n

This was triggered by the European Union\u2019s approval of the Microsoft deal on Monday, which clashed with a prior rejection by the U.K.\u2019s antitrust body. <\/p>\n

How did this happen?<\/strong><\/p>\n

Since the U.K. left the European Union its Competition and Markets Authority now acts as an independent regulator on large mergers. British lawmakers are currently debating legislation that would hand it more power to scrutinize big tech companies.<\/p>\n

While European lawmakers have been vocal critics of big U.S. technology companies in the past, this week\u2019s split suggests a shift that could see Britain replace the EU as the one of the world\u2019s toughest enforcers and the one to win over in terms of future megamergers. <\/p>\n

There are lessons to be learned from the
\n Microsoft
\n (ticker: MSFT)-
\n Activision
\n (ATVI) deal that could help companies such as
\n Apple
\n (AAPL),
\n Amazon
\n (AMZN),
\n Alphabet
\n (GOOGL), and
\n Meta
\n (META) clear future hurdles.\u00a0<\/p>\n

What\u2019s the issue with the Microsoft-Activision deal?\u00a0<\/strong><\/p>\n

The deal would hand Microsoft significant power in the nascent cloud-gaming business. Cloud-gaming allows users to stream videogames via a variety of devices and could eventually replace consoles and gaming computers.\u00a0<\/p>\n

Controlling Activision\u2019s content could give Microsoft a powerful advantage in attracting users to its cloud-gaming service, potentially hurting rivals such as
\n Sony
\n (SONY) and Nintendo (7974.Japan).\u00a0<\/p>\n

Microsoft sought to offset concerns by offering a series of 10-year licensing agreements that would ensure European consumers could play all current and future Activision games on any cloud-gaming service of their choice. The U.K.\u2019s Competition and Markets Authority rejected similar proposals in late April and, as we now know, EU regulators approved the deal on May 15.\u00a0<\/p>\n

Why did regulators disagree?\u00a0<\/strong><\/p>\n

The EU\u2019s stance is that by slapping conditions on the Microsoft-Activision deal now, it can set ground rules around the cloud-gaming sector and open up the market. It said the commitments would represent an improvement, as Activision doesn\u2019t currently license its games to cloud-based game-streaming services.<\/p>\n

What\u2019s key to note here is this suggests the EU favors \u2018behavioral remedies\u2019 when it comes to mergers between big technology companies\u2014extracting commitments that the merged business won\u2019t engage in anticompetitive behavior. It could also hint that the EU hopes an accommodating environment for mergers will stimulate Europe\u2019s own tech industry. \u00a0<\/p>\n

\u201cThe commitments will unlock significant benefits for competition and consumers, by bringing Activision\u2019s games to new platforms, including smaller EU players,\u201d the European Commission statement said. <\/p>\n

While the EU appears to have focused on the immediate effects on the merger, the U.K.\u2019s CMA took a skeptical line over how well behavioral remedies would hold up in the longer term. That\u2019s a crucial difference of opinion.<\/p>\n

In the CMA\u2019s own decision, it said the proposed licensing agreements left a \u201csignificant risk\u201d that Microsoft would end up in conflict with cloud-gaming rivals and highlighted the difficulties of enforcing the proposals.\u00a0<\/p>\n

\u201cWe don\u2019t really know where [cloud gaming] is going to go and depending upon how you want to define it, you could be including everything from just how the tech works to the content and infrastructure around it. That can potentially lead to quite different interpretations,\u201d George Osborn, director of policy communications at consultancy firm Taso Advisory, told Barron\u2019s.<\/em>\u00a0<\/p>\n

Blocking the deal entirely indicates U.K. regulators going forward could rely more on\u00a0\u2018structural remedies,\u2019 which include measures such as forcing companies to break themselves up or sell parts of their business to address antitrust concerns. That\u2019s not good news for Big Tech.\u00a0<\/p>\n

What happens next?\u00a0<\/strong><\/p>\n

In the U.S., the Federal Trade Commission (FTC) has already sued Microsoft in an attempt to block the deal. A hearing on the case is due to take place in early August but the outcome of the U.S. lawsuit is likely to be heavily conditioned by events in the U.K.\u00a0<\/p>\n

Thomas Smale, CEO of M&A advisory firm FE International, said that although the FTC operates independently and its decisions are not directly bound by those of other countries, it often takes international precedents and trends into account. \u201cTherefore, the UK\u2019s approach to vertical mergers in the gaming industry might be a factor that informs the FTC\u2019s perspective or discussions on similar matters,\u201d he said. <\/p>\n

Microsoft and Activision Blizzard are expected to appeal the U.K. decision in a British court. While the EU ruling could provide some marginal support for their case, it will be a stiff test\u2014with the U.K.\u2019s CMA having a strong historical record of prevailing against appeals. Analysts at Raymond James this week put the chances of a successful deal at just 10% to15%.\u00a0<\/p>\n

A more radical alternative put forward by analysts at Macquarie Research would be for Microsoft to close the deal anyway and look to bypass British objections by not offering Activision content on any cloud-gaming services in the U.K, including its own.\u00a0<\/p>\n

\u201c[That] would result in a legal battle with the CMA but one we think worth fighting as it is precedent-setting for an acquisitive company to allow one country to block a $75 billion deal,\u201d the Macquarie analysts wrote.<\/p>\n

Were Microsoft to take on such a battle and win, it could have a meaningful implication for its peers and beyond. While it would rile the U.K. regulator, it could also neuter its impact on the global regulatory stage.<\/p>\n

Should Microsoft leave the CMA decision unchallenged, it could embolden regulators far and wide that have previously left most decisions to bigger peers. <\/p>\n

Write to Adam Clark at adam.clark@barrons.com<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Microsoft\u2019s proposed $69 billion acquisition of Activision Blizzard has divided international regulators, which is not good news for U.S. companies keen on M&A. The split complicates the prospects for future deals and has the potential of curbing value-adding acquisitions for some of the world\u2019s biggest technology companies. This was triggered by the European Union\u2019s approval […]<\/p>\n","protected":false},"author":1,"featured_media":11884,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-11883","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nMicrosoft's Activision Deal Has Split Regulators. 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