This is Bloomberg Law with June Grosso from Bloomberg Radio.
This is Bloomberg Law. I'm Madison Mills. I'm in for June Grasso.
This week you got to talk about this Microsoft deal because Microsoft's sixty nine billion dollar acquisition of Activision Blizzard was temporarily blocked by a federal judge in California, that judge saying a temporary restraining order was necessary to maintain the status quo while the FTC challenges the deal. So here it makes sense of what all that means for us. As Jennifer Ree, Bloomberg Intelligence senior antitrust analyst, jen thank you so much for coming in to studio with us.
How big of a deal is this? Does this make the deal dead?
Madison first, thanks for having me. You know, I really don't think it does. I mean, I think this is a very important step to understand whether this deal is going to be dead or not. I mean, bear in mind that the temporary restraining order that was issued is very short term. You know, that's not a long term block the deal. That's just a block to give that federal court time to decide whether they should issue a preliminary injunction, which would then block the deal, allowing the
FTC's internal process to complete. That it won't complete, probably till about one Q. There will be a hearing on the preliminary injunction next week, starting on June twenty second, So the temporary restraining order that was entered only lasts until basically the later of five days after that decision if it's good for Microsoft and basically clears Microsoft, or some other date that the judge might set.
Well, was there any information that we got from this decision that was different than the UK decision and gives us intel into the thinking of the legal system here in the US versus the UK and how they might be different.
You know, not, really, this is really just procedural. A tro whist for temporary restraining order is really easy to get. The standards are very low. That's not a surprise. When the preliminary injunction decision comes out, that'll really give us some insight into how the US judge views this versus how the UK is viewing it. Now, I should say she said something interesting a few weeks ago. She is presiding over a private case in which consumers are actually
challenging this deal. That happens once in a while. Those kinds of cases don't tend to go very far. But this judge, Judge Corley, is presiding over that case and the UK decision did come up, and she said, it doesn't My standards are different. I'm not you know, what the UK did doesn't necessarily matter to me. I have to look at the evidence that's presented to me in
this case to make my decision. So she's very much understands where things are, but is ready to weigh the evidence that's presented to or in this hearing that we'll start on June twenty second, And.
Just to give our audience the recap, can you remind us the status of the UK situation as well?
Right, this is so complicated. So far, this deal has cleared in almost every jurisdiction in which it filed except so far the UK. In US, I believe there are two pending that we haven't heard from Australia and New Zealand where clearance is expected. So really we're just looking at UK and US. So the UK Competition and Markets Authority, after a long investigation, decided basically to block the deal.
They have a lot more power to do that at that level than the Federal Trade Commission in the US does. The CMA in the UK doesn't have to go to a judge and ask a judge for that block. They can issue that block themselves, which they've done, and Microsoft is basically now in the middle of an appeal. That appeal will be very difficult because the standards are very high to overturn a CMA decision. It doesn't mean they
don't have a chance. They certainly do have a chance, but it could take some time and they're in the middle of that process. What we have lately heard in the news, though, is the rumblings of the concept of closing the deal anyway despite that outstanding the UK activity now. That could mean closing it and then just continuing to litigate in the UK and dealing with any sanctions that might come, or it could mean pulling business out of the UK and closing it could mean many different things.
It's not clear that's what Microsoft is talking internally to its attorneys about now, but I think that's what prompted the FTC to file the suit in California because they were concerned about this news. They're hearing that Microsoft might go ahead and close the deal. They want to protect their internal process, which as I said, probably won't complete until early one Q. They want that process to complete before the parties have consummated the deal and integrated the businesses.
So that's why they went into the federal court to say, hey, give us a really quick, just temporary block on this deal so we can get our process done.
If the US and the UK both shoot down the deal, can it still work outside of these two jurisdictions or at that point is it kind of not worth it?
I think at that point it's probably done. I mean, you're talking about two really big economies, especially for gaming. I don't think it would make sense for the companies to deal with the sanctions that might come if they went ahead and closed or try to pull the businesses out of both the US and the UK. So I think that would be the end of the deal.
So in terms of where we're at now, if we're driving the car, Microsoft is driving the car, we're running out of gas, Like how much gas is left in the tank for this fight for them?
Not that much? I think, not very much. I mean, first issue is a deal end date in July. That's July eighteenth, and so at that point, Activision could choose to walk away and take a breakup fee. I believe it's about about three billion dollars. Microsoft would have to do something to sweeten the pot essentially to make them stay to extend that date if they can't get cleared
and actually close the deal by that time. So you have that kind of looming over everything, and of course Activision will play it close to the beast test of how they are thinking about that and what their strategy might be, you know. And then you also just have these tough fights. The FTC could appeal if it loses this preliminary junction, It could appeal. If it does appeal, it would seek an emergency order to once again keep the companies from closing pending the appeal. You know, I
think it's unlikely would win something like that. There's still a lot of fight left for the companies to defend here, you know, even if they're successful in this preliminary injunction hearing in court in California.
But obviously Microsoft has made the decision that it's totally worth the fight. At what point when we put on our Bloomberg intelligence hats that you put on every day at what point is it, like, guys, this is just not worth the money, the resources to keep fighting for this.
You know they really are.
I think probably this US process will be the one that basically is the deciding point here for the companies. You know, if they win this preliminary injunction, I see them forging ahead. If they don't win this preliminary injunction, I think at that point is when they really have to reevaluate is it worth it to have two appeals pending, both of which might be difficult in the US and the UK to try to get this deal closed. It starts to get very expensive and very lengthy at that point.
So I think that this is a very important step, the court process that's just been started in California.
And what does it tell us about the ft see if anything that we didn't already know. Was it surprising to you at all to get this move from the FTC?
I was surprised because it looks like it's more serious. It looks like the companies were considering closing over the UK more seriously than I thought. I believed the companies would probably work through the appeal and not try to figure out a way to go ahead. And close with this UK objection standing out there. But obviously, you know, the FTC talks to these parties and is aware of
confidential information that I am not. Obviously, they were very concerned that the companies were going to do this, so that's why they filed this. If they didn't believe they were going to go ahead and close, they wouldn't have
filed this. So that was surprising to me because it meant there was more seriousness than I thought to this talk about going ahead and closing, you know, And I think I think that's the main thing, the fact that they actually filed they were eventually going to have to do it one way or another, because once the companies were free to close, let's say they won the UK appeal or made it very clear that they're going to close over the UK peel, the FTC had to protect
its process by getting trying to get a federal court order.
Yeah, if you had the opportunity to have an interview with you know, all of your favorite FTC officials, what is the one question you would want to know from them to give you more insight into the deal?
Well, I think I wanted exactly what those confidential discussions have been about what Microsoft's plans are here in terms of, you know, whether they're going to forge ahead with this despite the UK objections or not. I mean, really, that's a surprising thing. It's not something I've ever witnessed interesting and I almost really hope they do it, just because I'd like to see how it all plays out. You know, it would be very interesting. So I think that would be one thing I'd like to know.
And that would be bad news for a lot of other deals, I would imagine, right, kind of does it set a precedent for other deals or is it a siloed decision?
You know, I think it's very siloed, because every deal really rests on its own facts. But I think what it does, it would better to see what happens in the UK and how they react, right, because it might, yes, it might open. It might give other companies ideas about this. See the UK having this really big role in global mergers is a very new thing. It's only a post Brexit matter, right, because before Brexit, most deals and there were deals that just triggered in the UK and got
UK review. They have done this before, but most big global deals just triggered into the European Commission and UK was part of that, right, So this is new that this regulator has this new role where they could actually block a global deal.
Well, it's so interesting to watch and like you said, so many moving parts. So we are very lucky to have you with us to break it all down again talking about the Microsoft and Activision deal here with Bloomberg Intelligence senior antitrust analyst Jennifer Ree.
Stick with us here on Bloomberg Law. We've got more coverage ahead. This is Bloomberg.
This is Bloomberg Law with June Grasso from Bloomberg Radio. I'm Madison Mills in for June Grasso this week on Bloomberg Law. As we've been discussing this anti trust situation Microsoft and Activision, we got to talk about the status of anti trust battles for the FTC and here to discuss that with us.
Is it Bloomberg Opinions. Ed Hammond ed great.
To speak with you, Thank you for having me, Thanks for coming on. What do we need to know about the current FDC and Department of Justice and how they're a little different than previous reigns.
Yeah, a lot different. I would say that the hyper aggressive to be clear, they've said that that's what they would be like from pretty early on. And indeed, in Lena Kahan's case, the Commissioner of the FTC, before she even took on the role, she had sort of outlined her philosophy, which was sort of you could think of it as being anti scale. She thinks big is bad pretty much regardless, and particularly where it involves technology companies.
So they've been you know, both the DOJ and the FTC have been incredibly aggressive when it comes to M and A and have litigated much more heavily against deals and previous administrations have. And we're beginning to sort of reach a point now where some of those you know, litigations they're bringing a, they're failing, they're losing in court, and companies are beginning to get in bold and I think and push back against it.
So that's interesting and I want to ask you about that. But what do you have to do to get a deal done under this FTC?
You have to be patient, I think is probably the key. Obviously, any litigation around M and A it prolongs the process. So really what you need to do if you're the acquirer coming in, you need to be mindful of the fact it's going to take longer than would potentially be the case under less stringent regulatory environments, and you have to go vince sella that that's in their best interest as well. Obviously as a company on the cell side, you know, you want the deal to happen as quickly
and as with the little friction as possible. And if you're saying to someone selling the company, look, you might be waiting two years, there's a lot that can happen in that period. Obviously that's a difficult decision for a sell side company to make. So I think really it's about like both sides being very committed to it, saying they're going to fight whatever they need to fight to get it done, and that they are willing for the you know, durational aspect of.
It to play out.
And how much power do the companies have here?
I think increasingly the companies and you know, the advisors that I speak to who work with a lot of these companies are of the mind that they have more power than they perhaps at first thought. I think some of the FTC's cases have been fairly weak on the face of it, and obviously as they go through the courts that's being proven out, and particularly you know, at the moment they seem to be getting in front of judges who are not necessarily very favorable to their way
of thinking. And I think that's given companies the view that, look, yes, the regulator environment creates hurdles, but the hurdables are hurdles sorry, that are surmountable. And that wasn't usually the case. Traditionally the viewers that if the FTC or DOJ came out against your deal, the deal probably died. You probably said, well, you know what, even if we have a shot at winning this in court, it's you know, it's ultimately it's
probably going to break up. Now I think companies are thinking about this bit differently and saying, you know, if we want to do this deal, we're going into it with the expectation that we're going to have to fight, and so that being baked into the assumptions about why they're going to do the deal, they're much more willing to go through the whole process with the FTC.
Does it make the bar higher or harder for deals because of that?
It should do. It should mean that, you know, deals that sort of don't make any sense and that would probably get litigated against in any regulator environment are less likely to happen. But I think, you know, we've seen a real chilling effect on deals obviously that the reason they've done this has been, you know, very aggressive against deeals is because they do want to have a chilling effect on M and A. They want to slow down
M and A. And it's worked so far. There has been like a significant drop off in the number of deals being announced, but I think that could flip back, particularly if we get later into the Biden administration, in terms of companies being in bold and as I say, try and push through some of these things.
Yeah, all right, well, Ed Hammond, thank you so much for joining us. Really appreciate it. You can read Ed's story of course on the terminal FTC surrenders its best weapon in anti trust battle.
That's from Bloomberg.
Opinions, Ed Hammond, continue and follow us here on Bloomberg Law for all of the legal news you need throughout the week. I'm Madison Mills in for June Graso, and this is Bloomberg