Why Business Leaders Need to Be Aware of Anti-Trust Developments
In our polarized political climate, there are few topics with which people find themselves aligned. A recent surprising development has been the desire to regulate particular business sectors and practices.
It seems this shift away from free markets and globalism has allowed an emboldened Federal Trade Commission (FTC), and to a lesser degree the Security and Exchange Commission (SEC), to adopt a far more aggressive—in my perspective, an activist—stance.
As a former executive in the game publisher space, I’ve seen how mergers and acquisitions help businesses reach their goals. In light of recent anti-trust developments, here’s what business leaders should be aware of.
Why You Should Care
This new approach has been seen with the FTC’s recent moves to block the $68 billion dollar (USD) Microsoft acquisition of game publisher Activision Blizzard. Over the past several decades, vertical mergers have generally been allowed. In fact, Microsoft competitor Sony was allowed to buy game developer Bungie, ironically both a prior Microsoft holding and also a company that once had a sales, distribution and co-development deal with Activision Blizzard (disclosure: I was an executive at Activision Blizzard during their commercial relationship with Bungie).
In 2021, Microsoft held 53% of the US console sales share—roughly half the market. Globally, Microsoft’s Xbox held a 14.7% market share of console sales, far below Sony’s dominant 85% plus share. Adding in mobile gaming share, Microsoft’s position is far from dominant. Software/IP “exclusives” have existed in gaming—as well as music and streaming video content—for decades with no perceived harm to gamers. And, even if that was a concern, Microsoft has promised competitors access to the top Activision IP, Call of Duty, for 10 years. Games are likely to be cloud-based soon, rendering the idea of console platforms moot.
The companies initially argued that the FTC’s structure and in-house administrative court, where the Activision case is being heard, “run afoul of the Constitution, the separation of powers and the due process clause of the Fifth Amendment.” All of which I agree with as a long-time executive and business leader who has been a part of multiple mergers and acquisitions.
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A few more reasons that show challenge and pushback are the proper counsel for business leaders is reflected in the track record of such efforts. Over the past two years, the FTC has largely been defeated in their lawsuits, from the 2020 reversal in the agency’s suit against Qualcomm to the loss of a suit against Facebook and the 2022 rejections by administrative judges of lawsuits against Altria as well as Illumina’s $7 billion (USD) merger with Grail. Seeing these losses, business leaders have decisions to help them stand their ground.
If this can happen to Microsoft, it can absolutely happen to you.
What Can You Do?
Speak up, hold firm. Microsoft and Activision Blizzard’s response is an example of my recommended approach if your potential merger is challenged: Fight back and hold your ground. It’s likely you will win in the courts and in the court of public opinion.
Replicate deals that have previously passed and shown customer value. If you are considering acquisition-driven growth, recent government actions suggest that you are far more likely to be challenged. In these cases, I would recommend transactions that structurally mirror what caselaw has previously allowed. And I would recommend also taking a path that includes rallying consumers to support the deal. FTC reviews include a “public comment” process and timeframe that is taken into account in decision-making.
Act now, as a now-divided federal government for 2023 should help businesses push back harder against the FTC. I would also counsel business leaders to move to pursue the mergers and acquisitions needed to reach their business goals in advance of the 2024 election cycle—approval is more likely now than it was in 2022 and could be in 2024.
Following this advice could help move your business forward in this new landscape of regulatory activism.
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