Microsoft Buying Activision Becomes A Political Football & Why We All Lose
Now let us (re)turn to an oldie-but-still-a-goodie topic that we have disgracefully let fall by the wayside but have never totally forgotten:
Microsoft's $69 billion purchase of gaming company Activision.
Long time readers will know that we have written about this proposed merger from two perspectives:
The first, way back when, was that Activision was a company in deep crisis and this was weighing on its stock price and perhaps its future. We argued that our core product existed to help you simply remove a company like this from your investments safely and painlessly and thereafter forget all about it. We thought Activision was a great use case.
The second was that the continuing problems and associated underperformance of the stock made Activision a very attractive takeover target which raised some interesting practical AND existential questions about whether companies being acquired made them likely to turn it around and whether it was a good idea to buy them in the expectation that this would occur etc.
We also argued that one of the issues for any Activision merger was that it was a very large company that could only be acquired by an even larger company and this was happening in a day and age where antitrust was all the rage.
By way of a brief update, Microsoft's early 2022 attempt to buy Activision is still undecided. On both sides of the Atlantic there is real regulatory pushback about the legality of a huge software company buying a large gaming company.
That is striking and amusing for a few reasons which we will get to but first a word about antitrust in general.
It surprise some readers to find out we are rather open to antitrust cases and actions. They should be used sparingly and with great even-handedness but they are an important part of a government's toolkit to keep capitalism on the straight and narrow.
The problem with antitrust enforcement is there are so few good examples of antitrust enforcement. There is the legendary AT&T case in the 1980s around its long distance telephone monopoly and that is sort of it.
There are other cases, of course. There are infamous cases against IBM and Microsoft that went on for many, many years and cost millions of dollars and achieved really nothing at all.
Yes, that really did happen and not forever ago either. It occurred in 2003.
And that brings us to Microsoft
Regrettably, the FTC under Lina Khan has already made a fool of itself a few times in the last few years. For instance, we have previously written about their rather facile arguments about a duopoly in online advertising falling to pieces only years after it came into existence.
More recently, the FTC has also had two high profile cases thrown out of court as well. The case against Meta/Facebook didn't have enough evidence and their attempt to stop Illumina's purchase of blood cancer start-up Grail collapsed because the FTC's own, in-house judge ruled that the facts didn't support the government's theory.
(he was subsequently overruled by the FTC and the case went ahead but that doesn't mean that the judge was wrong!)
Notice a theme here?
In practical terms, the slew of the FTC's "noble defeats" would appear to be nothing more than a make work program for very expensive antitrust lawyers. That would also makes it a waste of time but, as we cover below, that isn't actually all.
They are not just wasting everyone's time. They are trying to disrupt and dampen this type of economy activity by making it costly, painful and, above all, very, very time consuming.
They are trying to make mergers and acquisitions toxic.
If the most important aspect of this newly reborn passion for antitrust crusades is that it is doesn't often succeed then the second most important quality is that it is also politicized and in a bipartisan fashion.
The only difference is the ideological bent. Democrats (and especially Lina Khan's neo-Brandesians) don't like Big Tech and industry consolidation in general while former President Donald F. Trump's Republicans don't like whatever offends Donald F. Trump.
President Trump memorably had a string of Lina Khan-like losses trying to stop the AT&T and Time Warner merger because he was feuding with CNN, then owned by Time Warner. The case that was laughed out of court and was irrelevant anyway. The markets did a better job of rendering a verdict (it was terrible and the whole thing had to be unwound) than the government could ever manage.
This is still a bad sign though. The most significant issue is, if you are not truly looking at a merger (or an industry) on its merits but are instead looking at it through a political lens of whatever fits the ideological then several things are very likely:
You will have to twist the truth and even lie repeatedly to make many of these antitrust cases stick.
That will cost you the credibility of being able to actually act when truly necessary antitrust action is required. You only get to cry "Wolf!" so many times....
And perhaps most importantly, you have further politicized the supposedly dispassionate regulatory management of the US economy which will be a very difficult genie to put back into the lamp.
This is a very bad idea! As we usually say at this juncture, we live in the Great Forgetting.
One side will simply stop believing the side is ever acting in good faith.
Pursuing companies for political gain or simply political vengeance is bad when Donald Trump goes after Time Warner, it is bad when Ron DeSantis does it to Disney and it is bad when Lina Khan does it to Microsoft.
The biggest reason is that this politicization creates a lot of uncertainty about whether a corporate action like a merger will be successful. It also creates a lot of volatility while these fights go on and on. Companies cannot plan for a future when so much of their present is under a cloud of legal uncertainty.
It is striking how strange it is to write the following: we should be very careful about just casually trying to destroy great American companies. And these are great American companies. They are also great American brands. They also employ tens of thousands of Americans and do billions and billions in revenue and shine the strength of American business and soft power all over the world. That isn't something you should easily seek to destroy, let alone out of some juvenile sense of vengeance.
And that brings us back to Microsoft.
We take no hard position on whether the FTC will win the case on the Activision acquisition though we highly doubt it. The EU has passed it and though the UK has not, they may fold on appeal or risk being carved out. No doubt the US FTC will fight like hell but what can there arguments truly be?!
There are many gaming companies and new and hugely popular game franchises are invented all the time. There is no monopoly here. There never was. There isn't even a limitation of one console over the other, Microsoft has promised otherwise and so what? You couldn't play Mario Brothers on Sega Genesis and the world survived. Even the New York Times struggled to defend these actions saying that this was "pushing the boundaries of antitrust" and "would be hard to win."
Yes, quite.
The saddest part of this is that Lina Khan and her allies likely know all of this and don't care. And not just because they are "addicted to losing" but rather because, cynically, they want to send the message that even sensible mergers and acquisitions will be fought tooth and nail by the US government.
Losing may be embarrassing but their ultimate goal is not really to stop the Microsoft merger but rather to create enough regulatory uncertainty that discourages businesses from attempting to do deals in the first place. Problem solved!
Filing frivolous lawsuits to harass legal business decisions is not what the antitrust laws were passed to accomplish and regular people might not know every aspect of it but they know enough to realize when the rule of law is being twisted and abused for political ends.
It is worth remembering that part of what made Donald Trump so popular was he said out loud what everyone thought was happening anyway. It was a relief to finally actually hear it laid out.
Mendacity and cynicism is a sad pair of principles to represent anywhere but especially when you are representing the US government.
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