At this stage the question does not appear to be whether but when--Monday, Tuesday, or in August--Microsoft will consummate the acquisition of Activision Blizzard King. There were signs of ABK being delisted from NASDAQ or at least removed from the NASDAQ-100 index as early as tomorrow.
Even a commercial agreement between Sony and Microsoft to keep Call of Duty on the former's PlayStation has fallen into place. Sony was the only vocal deal critic, though Google was lobbying against the transaction as well.
The contractual target date for closing is Tuesday, July 18. There have been media reports of a potential extension since the UK Competition & Markets Authority (CMA) opened a new investigation in light of a new proposed deal structure, with a late-August deadline and the plan to wrap up ahead of schedule (PDF). The Financial Times wrote:
"[A]fter this week’s legal victory in the US courts and a potential lifeline in the UK, people close to the companies say they are likely to agree an extension to the deal early next week.
"'Things are moving quite quickly,' said one person close to the negotiations."
There's been a flurry of news recently. On Tuesday, Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California denied (PDF) a motion by the Federal Trade Commission (FTC) for a preliminary injunction that would have blocked the transaction. That was the outcome I predicted in my previous post on that topic. Just as I already observed when I attended the five-day PI hearing in person, the FTC failed to meet multiple requirements for a merger PI.
Between that decision and the Ninth Circuit's denial of an emergency motion by the FTC, various gamers reported that my name became a trending topic on Twitter for that community. But I'd rather talk now about the actual decision makers and the key institutions, and what the current situation means for them and their regulatory philosophies:
DG COMP showed the way
In the wake of the U.S. court rulings, a very thoughtful gamer and developer active on social media as EverbornSaga--who made various great contributions to my recent Twitter Spaces (basically, talk shows via Twitter)--declared the European Commission's Executive Vice President Margrethe Vestager "[t]he True Hero of this Story":
The True Hero of this Story… pic.twitter.com/DlHuwRqsIx
— Everborn Saga (@EverbornSaga) July 15, 2023
Everborn has a point.
Judge Corley started the final part of her PI denial order ("Conclusion") with the following observation:
"Microsoft’s acquisition of Activision has been described as the largest in tech history. It deserves scrutiny. That scrutiny has paid off: Microsoft has committed in writing, in public, and in court to keep Call of Duty on PlayStation for 10 years on parity with Xbox. It made an agreement with Nintendo to bring Call of Duty to Switch. And it entered several agreements to for the first time bring Activision’s content to several cloud gaming services."
That paragraph was just a more formal version of something she said at the PI hearing about those commitments and agreements:
"In many ways you [the regulators] won."
The FTC's trial counsel rejected that notion. They just wanted to block the merger. They wanted both the district court and the appeals court to turn a blind eye to the remedies that were already in place and constituted market realities. But Judge Corley was right--and is even more right now that Sony--albeit at long last--accepted an offer by Microsoft.
In a speech I called "historic" on Twitter and in various interviews, EVP Vestager stressed the need to focus on how regulators can bring about results that benefit the competitive process and consumers. She opposed the idea of--in my words--a hawkishness contest between regulators.
I still believe that actually the regulators who cleared the transaction unconditionally--most recently the Turkish competition authority--got it right. In fact, the Brazilian and Chilean decisions were my favorite ones, and in Chile they even conducted a survey among gamers to get an idea of whether vertical input foreclosure would work. But as Judge Corley wrote, the size of the deal warranted scrutiny, and that's why I don't blame regulators for launching a Phase II investigation. Still, I think that the most that a regulator could reasonably have expected here--given that the deal raises no competition concerns if analyzed competently and viewed rationally--would have been some public statements prior to clearance. Enforceable remedies with an independent monitor just seem unnecessary to me. Be that as it may, the European Commission received extremely positive feedback from gamers for clearing the deal on the basis of consumer-oriented formal remedies.
The U.S. judiciary has, by extension, endorsed EVP Vestager's regulatory philosophy.
FTC should drop its "case" now
As someone who spent far more time in court supporting (in 2019) than criticizing (in 2023) the FTC, I'm disappointed. The FTC's emergency motion with the Ninth Circuit was disingenuous in various ways. And it failed miserably.
The FTC's in-house trial is scheduled to start on August 2, and as per the Ninth Circuit's normal schedule (which can always be extended) for PI appeals, it has until August 9 to file an opening brief. The only logical thing now would be to seek an extension from the Ninth Circuit (easy, especially as I'm sure it would be unopposed) and to postpone that trial to conserve resources. And to drop the "case" after the deal has closed, as the FTC has historically always done.
Will this FTC make a rational decision? Maybe today's annoncement of an agreement between Microsoft and Sony makes it easier.
UK CMA still an outlier, but now a solution-oriented one
I stand by my harsh criticism of the UK CMA's April 26 decision and last year's issues statement. The blocking decision was all the more disappointing as I actually thought they were on the right track when they dropped their console market theory of harm in late March. Now I see that a lot of gamers are not really trusting the CMA anymore, though I encourage them to appreciate the fact that the CMA is willing to evaluate a new deal structure.
According to rumors in the media, that new deal structure would involve the divestiture of Microsoft's UK cloud gaming business to British Telecom subsidiary EE, which already had a 10-year agreement in place with Microsoft for Activision's titles.
If the CMA now approves the deal, it will have maintained the integrity of its processes, avoided a decision by the UK Competition Appeal Tribunal (which will hold a case management conference tomorrow in light of the parties' motion to stay the proceedings), and remained consistent with its position that non-divestiture remedies are disfavored even for vertical mergers.
That makes the CMA a winner, too. The question is now whether a solution can be found that enables the closing of the deal in the days ahead while also allowing the new merger review to go forward. My personal opinion is that if the CMA is philosophically inclined to clear the deal based on a UK-specific divestiture remedy, they could make an exception here and let the deal close for the time being. This merger review process is unlike any other, and therefore not really precedent-setting. Today's announcement of the agreement between Microsoft and Sony could make a major difference now.
There are serious issues in the tech industry, and arguably some even bigger problems that the world is facing in other respects. I've always said I want those regulators to emerge stronger. The FTC under its current chair has lost all four of its merger challenges. And the way they lose does not really suggest that they contribute to the evolution of U.S. merger case law or build an argument for legislative intervention, though I personally would actually consider it a good idea to make U.S. antitrust enforcement stronger if some problems (such as the FTC's in-house adjudicative proceedings, where the commissioners can ultimately just vote in favor of their own complaints) are addressed.
In the UK, the DMCC Bill will give the CMA's Digital Markets Unit more powers, and as an app maker I like that, too, though after this experience with the Microsoft-Activision case I believe a robust judicial review by the Competition Appeal Tribunal is key. Is the current framework good enough? Clearly, the CATribunal (or just CAT) is a winner here. It recognized the importance of this case, went out of its way to enable swift adjudication, and is clearly force to be reckoned with while a lot of "experts" suggested the CMA could basically do whatever it wants as the CAT would have to rubberstamp its decisions (not true) and always remand the cases anyway (not certain as the CAT itself interprets the relevant statute, which is not strictly limiting, and if the CAT effectively resolves a substantive question, a remand can be reduced to a mere notarization of a CAT decision).
I have great respect for the CMA's willingness to reevaluate the transaction in light of a new proposed deal structure, and I am hopeful that solutions will be found. Ideally also a provisional one that enables the closing of the deal in the days ahead.
As of now, prior to a new CMA decision and a New Zealand ruling that may come down in a matter of hours, the transaction can be closed with respect to 41 countries with 2.8 billion inhabitants and representing about two thirds of the global economy. With more to come.
