The Future of M&A in the Gaming Industry: Decoding the Microsoft-Activision Ruling

What the Microsoft–Activision Ruling Means for the Future of Deal-Making

A Reckoning for Lina Khan

In a significant blow to the Federal Trade Commission (FTC), a federal judge has allowed Microsoft to proceed with its $70 billion takeover of video game maker Activision Blizzard. This ruling represents not only a win for Microsoft but also a setback for FTC Chair Lina Khan, who has been advocating for more expansive antitrust regulation. The decision raises important questions about the efficacy of the FTC’s strategy and whether it is inadvertently encouraging more dealmaking.

Judge Jacqueline Scott Corley, in her 53-page ruling, stated that the FTC failed to demonstrate that Microsoft‘s acquisition of Activision Blizzard would substantially reduce competition in the video game market. This favorable ruling, combined with the UK Competition and Markets Authority’s willingness to hear settlement proposals from Microsoft, indicates that the deal could close as soon as next week.

This ruling is not the first defeat for the FTC under Lina Khan’s leadership. The agency recently abandoned its fight against Meta’s acquisition of a virtual reality start-up and also suffered a defeat in its own administrative court regarding the Illumina-Grail merger. Despite these setbacks, it seems unlikely that Lina Khan will change her approach in the near term. The FTC may appeal Judge Corley’s decision, with its argument potentially centering on the judge’s reliance on an erroneous legal standard about the likelihood of reduced competition.

The Boundaries of Antitrust Jurisprudence

While some experts argue that the FTC’s losses are narrowing the boundaries of antitrust jurisprudence, others believe that Lina Khan’s more expansive approach aligns with regulators in Europe and Britain. It is worth noting that E.U. officials cleared the Activision deal in May. However, skeptics contend that the FTC is in a weaker position, and the courts may not be ready for Khan’s ambitious agenda.

Dealmakers, on the other hand, are becoming increasingly emboldened by the FTC’s defeats. Executives and advisers see an opportunity to pursue ambitious deals with a greater chance of success in court. While the FTC may still sue to block significant transactions, the repeated losses have bolstered the confidence of dealmakers. However, they are cautious, recognizing that each situation has its unique circumstances.

The Future of Deal-Making

The Microsoft–Activision ruling raises larger questions about the future of deal-making and antitrust regulation. The clash between the FTC, which seeks to prevent anti-competitive behavior, and corporate leaders, who are eager to pursue ambitious deals, reflects a broader debate around the role and limits of government intervention in the economy.

The Role of Antitrust Regulation

Antitrust regulation aims to promote competition and prevent the concentration of power in the hands of few dominant players. Proponents argue that strict antitrust enforcement is necessary to protect consumers, ensure market fairness, and foster innovation. They believe that aggressive oversight and scrutiny of mergers and acquisitions are essential to maintain a level playing field and prevent monopolistic practices.

However, critics argue that excessive regulation can stifle economic growth and innovation. They contend that robust competition naturally safeguards against anti-competitive behavior, as market forces drive companies to continuously improve their products and services. They believe that government intervention should be limited, allowing businesses to freely negotiate deals and pursue growth opportunities.

The Balance of Power

The Microsoft–Activision ruling highlights a potential shift in the balance of power between regulators and corporations. The repeated losses by the FTC suggest that courts may be less inclined to support aggressive antitrust enforcement. This could embolden companies to pursue mergers and acquisitions with greater confidence, knowing that the FTC’s arguments may be less effective in court.

It is essential to strike a balance between protecting competition and fostering innovation. While excessive regulation can stifle growth, unbridled consolidation can lead to monopolistic behavior and harm consumers. Antitrust regulation should aim to promote healthy competition and ensure that the benefits of market power are distributed equitably.

Advice for the FTC and Corporate Leaders

For the FTC, the Microsoft–Activision ruling presents an opportunity to reassess its strategy and approach. While Lina Khan is unlikely to change course, the repeated defeats should prompt the agency to critically evaluate its arguments and legal standards. The FTC should focus on strengthening its cases, ensuring that they are supported by rigorous economic analysis and compelling evidence of potential harm to competition and consumers.

For corporate leaders, the recent setbacks faced by the FTC should not be seen as a carte blanche to pursue any and all ambitious deals. While the boundaries of antitrust jurisprudence may be shifting, there is no guarantee of victory in court. It is crucial for companies to conduct thorough due diligence, anticipate potential challenges, and make compelling arguments for the pro-competitive benefits of their proposed transactions.

In conclusion, the Microsoft–Activision ruling has significant implications for the future of deal-making and antitrust regulation. It underscores the ongoing tension between corporate ambitions and regulatory oversight and raises important philosophical questions about the role of government intervention in the economy. Striking the right balance between competition and innovation requires thoughtful and nuanced approaches from both regulators and corporate leaders alike.