Microsoft’s $70 billion bid for Activision may be reviewed by the Federal Trade Commission (FTC) in what will become its first test to show its new approach to mergers since the joint consultation with the Justice Department’s Antitrust Division (DOJ) to review the merger guidelines, according to Bloomberg.
In the U.S., merger reviews are conducted by the FTC or the DOJ, depending on the sectors affected by the merger. If this merger is reviewed by the FTC, it will be the first big deal that FTC Chair Lina Khan, a noted critic of Big Tech, reviews from Amazon, Apple, Google, Meta or Microsoft.
Khan has already displayed a tough approach to big deals since she was appointed by President Joe Biden in June 2021. Her first case was Nvidia’s $40 billion planned acquisition of Arm, which the FTC sued to block in December 2021. The deal may never go to trial as the parties are reportedly considering walking away given the increasing number of regulatory hurdles, including national security concerns in the U.K.
The second example, from January, is Lockheed Martin’s $4.4 billion takeover of Aerojet Rocketdyne Holdings.
Perhaps the strongest evidence of Khan’s intentions to scrutinize Big Tech companies is the current litigation where the FTC is seeking to unwind Facebook’s acquisitions of WhatsApp and Instagram. The FTC will face an uphill road to prove allegations of harm in the court, as the judge expressed in his opinion, “whether the FTC will be able to prove its case and prevail at summary judgment and trial is anyone’s guess.” However, if the regulator succeeds, it will be the biggest divestment since Standard Oil was ordered to break up in 1911.
The Microsoft deal will likely test how far the FTC is willing to go in an antitrust merger review. New merger guidelines won’t be ready by the time the case concludes, but the regulator may use the review to test some of theories of harm that will be included in the new guidelines. For instance, competition in nascent markets like cloud gaming, or even a first approach to online gaming in decentralized environments such as the metaverse, may be part of the review.
From an antitrust point of view, an issue that may arise is whether Microsoft will have the capacity and incentive to roll out exclusionary policies. For example, Microsoft could decide to make some games, like Call of Duty, available only on Xbox and PC but not on the PlayStation. In some cases, this practice can be flagged as anticompetitive.
However, Sony may be preparing for such scenario. Reportedly, Sony is in talks to snap up video game developer Bungie for $3.6 billion. Sony may also choose to make video games available on all platforms and consoles or just to keep them exclusively for PlayStation. In any event, this acquisition is likely to help Microsoft in its regulatory review as the company could argue that the market of video game developers is still strong and competitive.
This deal is a good opportunity for the FTC to analyze some of the aspects that triggered the public consultation on merger guidelines and provide clarity. Before taking any action, the FTC should also coordinate with other antirust agencies around the world to trade opinions.