Speaker 1: This is Bloomberg Law with June Grosso from Bloomberg Radio.
Speaker 2: This is Bloomberg Law. I'm Madison Mills. I'm in for
Speaker 2: June Grasso.
Speaker 1: This week you got to talk about this Microsoft deal
Speaker 1: because Microsoft's sixty nine billion dollar acquisition of Activision Blizzard
Speaker 1: was temporarily blocked by a federal judge in California, that
Speaker 1: judge saying a temporary restraining order was necessary to maintain
Speaker 1: the status quo while the FTC challenges the deal. So
Speaker 1: here it makes sense of what all that means for us.
Speaker 1: As Jennifer Ree, Bloomberg Intelligence senior antitrust analyst, jen thank
Speaker 1: you so much for coming in to studio with us.
Speaker 1: How big of a deal is this? Does this make
Speaker 1: the deal dead?
Speaker 3: Madison first, thanks for having me. You know, I really
Speaker 3: don't think it does. I mean, I think this is
Speaker 3: a very important step to understand whether this deal is
Speaker 3: going to be dead or not. I mean, bear in
Speaker 3: mind that the temporary restraining order that was issued is
Speaker 3: very short term. You know, that's not a long term
Speaker 3: block the deal. That's just a block to give that
Speaker 3: federal court time to decide whether they should issue a
Speaker 3: preliminary injunction, which would then block the deal, allowing the
Speaker 3: FTC's internal process to complete. That it won't complete, probably
Speaker 3: till about one Q. There will be a hearing on
Speaker 3: the preliminary injunction next week, starting on June twenty second,
Speaker 3: So the temporary restraining order that was entered only lasts
Speaker 3: until basically the later of five days after that decision
Speaker 3: if it's good for Microsoft and basically clears Microsoft, or
Speaker 3: some other date that the judge might set.
Speaker 1: Well, was there any information that we got from this
Speaker 1: decision that was different than the UK decision and gives
Speaker 1: us intel into the thinking of the legal system here
Speaker 1: in the US versus the UK and how they might
Speaker 1: be different.
Speaker 3: You know, not, really, this is really just procedural. A
Speaker 3: tro whist for temporary restraining order is really easy to get.
Speaker 3: The standards are very low. That's not a surprise. When
Speaker 3: the preliminary injunction decision comes out, that'll really give us
Speaker 3: some insight into how the US judge views this versus
Speaker 3: how the UK is viewing it. Now, I should say
Speaker 3: she said something interesting a few weeks ago. She is
Speaker 3: presiding over a private case in which consumers are actually
Speaker 3: challenging this deal. That happens once in a while. Those
Speaker 3: kinds of cases don't tend to go very far. But
Speaker 3: this judge, Judge Corley, is presiding over that case and
Speaker 3: the UK decision did come up, and she said, it
Speaker 3: doesn't My standards are different. I'm not you know, what
Speaker 3: the UK did doesn't necessarily matter to me. I have
Speaker 3: to look at the evidence that's presented to me in
Speaker 3: this case to make my decision. So she's very much
Speaker 3: understands where things are, but is ready to weigh the
Speaker 3: evidence that's presented to or in this hearing that we'll
Speaker 3: start on June twenty second, And.
Speaker 1: Just to give our audience the recap, can you remind
Speaker 1: us the status of the UK situation as well?
Speaker 3: Right, this is so complicated. So far, this deal has
Speaker 3: cleared in almost every jurisdiction in which it filed except
Speaker 3: so far the UK. In US, I believe there are
Speaker 3: two pending that we haven't heard from Australia and New
Speaker 3: Zealand where clearance is expected. So really we're just looking
Speaker 3: at UK and US. So the UK Competition and Markets Authority,
Speaker 3: after a long investigation, decided basically to block the deal.
Speaker 3: They have a lot more power to do that at
Speaker 3: that level than the Federal Trade Commission in the US does.
Speaker 3: The CMA in the UK doesn't have to go to
Speaker 3: a judge and ask a judge for that block. They
Speaker 3: can issue that block themselves, which they've done, and Microsoft
Speaker 3: is basically now in the middle of an appeal. That
Speaker 3: appeal will be very difficult because the standards are very
Speaker 3: high to overturn a CMA decision. It doesn't mean they
Speaker 3: don't have a chance. They certainly do have a chance,
Speaker 3: but it could take some time and they're in the
Speaker 3: middle of that process. What we have lately heard in
Speaker 3: the news, though, is the rumblings of the concept of
Speaker 3: closing the deal anyway despite that outstanding the UK activity now.
Speaker 3: That could mean closing it and then just continuing to
Speaker 3: litigate in the UK and dealing with any sanctions that
Speaker 3: might come, or it could mean pulling business out of
Speaker 3: the UK and closing it could mean many different things.
Speaker 3: It's not clear that's what Microsoft is talking internally to
Speaker 3: its attorneys about now, but I think that's what prompted
Speaker 3: the FTC to file the suit in California because they
Speaker 3: were concerned about this news. They're hearing that Microsoft might
Speaker 3: go ahead and close the deal. They want to protect
Speaker 3: their internal process, which as I said, probably won't complete
Speaker 3: until early one Q. They want that process to complete
Speaker 3: before the parties have consummated the deal and integrated the businesses.
Speaker 3: So that's why they went into the federal court to say, hey,
Speaker 3: give us a really quick, just temporary block on this
Speaker 3: deal so we can get our process done.
Speaker 1: If the US and the UK both shoot down the deal,
Speaker 1: can it still work outside of these two jurisdictions or
Speaker 1: at that point is it kind of not worth it?
Speaker 3: I think at that point it's probably done. I mean,
Speaker 3: you're talking about two really big economies, especially for gaming.
Speaker 3: I don't think it would make sense for the companies
Speaker 3: to deal with the sanctions that might come if they
Speaker 3: went ahead and closed or try to pull the businesses
Speaker 3: out of both the US and the UK. So I
Speaker 3: think that would be the end of the deal.
Speaker 1: So in terms of where we're at now, if we're
Speaker 1: driving the car, Microsoft is driving the car, we're running
Speaker 1: out of gas, Like how much gas is left in
Speaker 1: the tank for this fight for them?
Speaker 3: Not that much? I think, not very much. I mean,
Speaker 3: first issue is a deal end date in July. That's
Speaker 3: July eighteenth, and so at that point, Activision could choose
Speaker 3: to walk away and take a breakup fee. I believe
Speaker 3: it's about about three billion dollars. Microsoft would have to
Speaker 3: do something to sweeten the pot essentially to make them
Speaker 3: stay to extend that date if they can't get cleared
Speaker 3: and actually close the deal by that time. So you
Speaker 3: have that kind of looming over everything, and of course
Speaker 3: Activision will play it close to the beast test of
Speaker 3: how they are thinking about that and what their strategy
Speaker 3: might be, you know. And then you also just have
Speaker 3: these tough fights. The FTC could appeal if it loses
Speaker 3: this preliminary junction, It could appeal. If it does appeal,
Speaker 3: it would seek an emergency order to once again keep
Speaker 3: the companies from closing pending the appeal. You know, I
Speaker 3: think it's unlikely would win something like that. There's still
Speaker 3: a lot of fight left for the companies to defend here,
Speaker 3: you know, even if they're successful in this preliminary injunction
Speaker 3: hearing in court in California.
Speaker 1: But obviously Microsoft has made the decision that it's totally
Speaker 1: worth the fight. At what point when we put on
Speaker 1: our Bloomberg intelligence hats that you put on every day
Speaker 1: at what point is it, like, guys, this is just
Speaker 1: not worth the money, the resources to keep fighting for this.
Speaker 2: You know they really are.
Speaker 3: I think probably this US process will be the one
Speaker 3: that basically is the deciding point here for the companies.
Speaker 3: You know, if they win this preliminary injunction, I see
Speaker 3: them forging ahead. If they don't win this preliminary injunction,
Speaker 3: I think at that point is when they really have
Speaker 3: to reevaluate is it worth it to have two appeals pending,
Speaker 3: both of which might be difficult in the US and
Speaker 3: the UK to try to get this deal closed. It
Speaker 3: starts to get very expensive and very lengthy at that point.
Speaker 3: So I think that this is a very important step,
Speaker 3: the court process that's just been started in California.
Speaker 1: And what does it tell us about the ft see
Speaker 1: if anything that we didn't already know. Was it surprising
Speaker 1: to you at all to get this move from the FTC?
Speaker 3: I was surprised because it looks like it's more serious.
Speaker 3: It looks like the companies were considering closing over the
Speaker 3: UK more seriously than I thought. I believed the companies
Speaker 3: would probably work through the appeal and not try to
Speaker 3: figure out a way to go ahead. And close with
Speaker 3: this UK objection standing out there. But obviously, you know,
Speaker 3: the FTC talks to these parties and is aware of
Speaker 3: confidential information that I am not. Obviously, they were very
Speaker 3: concerned that the companies were going to do this, so
Speaker 3: that's why they filed this. If they didn't believe they
Speaker 3: were going to go ahead and close, they wouldn't have
Speaker 3: filed this. So that was surprising to me because it
Speaker 3: meant there was more seriousness than I thought to this
Speaker 3: talk about going ahead and closing, you know, And I
Speaker 3: think I think that's the main thing, the fact that
Speaker 3: they actually filed they were eventually going to have to
Speaker 3: do it one way or another, because once the companies
Speaker 3: were free to close, let's say they won the UK
Speaker 3: appeal or made it very clear that they're going to
Speaker 3: close over the UK peel, the FTC had to protect
Speaker 3: its process by getting trying to get a federal court order.
Speaker 1: Yeah, if you had the opportunity to have an interview
Speaker 1: with you know, all of your favorite FTC officials, what
Speaker 1: is the one question you would want to know from
Speaker 1: them to give you more insight into the deal?
Speaker 3: Well, I think I wanted exactly what those confidential discussions
Speaker 3: have been about what Microsoft's plans are here in terms of,
Speaker 3: you know, whether they're going to forge ahead with this
Speaker 3: despite the UK objections or not. I mean, really, that's
Speaker 3: a surprising thing. It's not something I've ever witnessed interesting
Speaker 3: and I almost really hope they do it, just because
Speaker 3: I'd like to see how it all plays out. You know,
Speaker 3: it would be very interesting. So I think that would
Speaker 3: be one thing I'd like to know.
Speaker 1: And that would be bad news for a lot of
Speaker 1: other deals, I would imagine, right, kind of does it
Speaker 1: set a precedent for other deals or is it a
Speaker 1: siloed decision?
Speaker 3: You know, I think it's very siloed, because every deal
Speaker 3: really rests on its own facts. But I think what
Speaker 3: it does, it would better to see what happens in
Speaker 3: the UK and how they react, right, because it might, yes,
Speaker 3: it might open. It might give other companies ideas about this.
Speaker 3: See the UK having this really big role in global
Speaker 3: mergers is a very new thing. It's only a post
Speaker 3: Brexit matter, right, because before Brexit, most deals and there
Speaker 3: were deals that just triggered in the UK and got
Speaker 3: UK review. They have done this before, but most big
Speaker 3: global deals just triggered into the European Commission and UK
Speaker 3: was part of that, right, So this is new that
Speaker 3: this regulator has this new role where they could actually
Speaker 3: block a global deal.
Speaker 1: Well, it's so interesting to watch and like you said,
Speaker 1: so many moving parts. So we are very lucky to
Speaker 1: have you with us to break it all down again
Speaker 1: talking about the Microsoft and Activision deal here with Bloomberg
Speaker 1: Intelligence senior antitrust analyst Jennifer Ree.
Speaker 2: Stick with us here on Bloomberg Law. We've got more
Speaker 2: coverage ahead. This is Bloomberg.
Speaker 1: This is Bloomberg Law with June Grasso from Bloomberg Radio.
Speaker 1: I'm Madison Mills in for June Grasso this week on
Speaker 1: Bloomberg Law. As we've been discussing this anti trust situation
Speaker 1: Microsoft and Activision, we got to talk about the status
Speaker 1: of anti trust battles for the FTC and here to
Speaker 1: discuss that with us.
Speaker 2: Is it Bloomberg Opinions. Ed Hammond ed great.
Speaker 1: To speak with you, Thank you for having me, Thanks
Speaker 1: for coming on. What do we need to know about
Speaker 1: the current FDC and Department of Justice and how they're
Speaker 1: a little different than previous reigns.
Speaker 4: Yeah, a lot different. I would say that the hyper
Speaker 4: aggressive to be clear, they've said that that's what they
Speaker 4: would be like from pretty early on. And indeed, in
Speaker 4: Lena Kahan's case, the Commissioner of the FTC, before she
Speaker 4: even took on the role, she had sort of outlined
Speaker 4: her philosophy, which was sort of you could think of
Speaker 4: it as being anti scale. She thinks big is bad
Speaker 4: pretty much regardless, and particularly where it involves technology companies.
Speaker 4: So they've been you know, both the DOJ and the
Speaker 4: FTC have been incredibly aggressive when it comes to M
Speaker 4: and A and have litigated much more heavily against deals
Speaker 4: and previous administrations have. And we're beginning to sort of
Speaker 4: reach a point now where some of those you know,
Speaker 4: litigations they're bringing a, they're failing, they're losing in court,
Speaker 4: and companies are beginning to get in bold and I
Speaker 4: think and push back against it.
Speaker 1: So that's interesting and I want to ask you about that.
Speaker 1: But what do you have to do to get a
Speaker 1: deal done under this FTC?
Speaker 4: You have to be patient, I think is probably the key. Obviously,
Speaker 4: any litigation around M and A it prolongs the process.
Speaker 4: So really what you need to do if you're the
Speaker 4: acquirer coming in, you need to be mindful of the
Speaker 4: fact it's going to take longer than would potentially be
Speaker 4: the case under less stringent regulatory environments, and you have
Speaker 4: to go vince sella that that's in their best interest
Speaker 4: as well. Obviously as a company on the cell side,
Speaker 4: you know, you want the deal to happen as quickly
Speaker 4: and as with the little friction as possible. And if
Speaker 4: you're saying to someone selling the company, look, you might
Speaker 4: be waiting two years, there's a lot that can happen
Speaker 4: in that period. Obviously that's a difficult decision for a
Speaker 4: sell side company to make. So I think really it's
Speaker 4: about like both sides being very committed to it, saying
Speaker 4: they're going to fight whatever they need to fight to
Speaker 4: get it done, and that they are willing for the
Speaker 4: you know, durational aspect of.
Speaker 1: It to play out.
Speaker 2: And how much power do the companies have here?
Speaker 4: I think increasingly the companies and you know, the advisors
Speaker 4: that I speak to who work with a lot of
Speaker 4: these companies are of the mind that they have more
Speaker 4: power than they perhaps at first thought. I think some
Speaker 4: of the FTC's cases have been fairly weak on the
Speaker 4: face of it, and obviously as they go through the
Speaker 4: courts that's being proven out, and particularly you know, at
Speaker 4: the moment they seem to be getting in front of
Speaker 4: judges who are not necessarily very favorable to their way
Speaker 4: of thinking. And I think that's given companies the view that, look, yes,
Speaker 4: the regulator environment creates hurdles, but the hurdables are hurdles sorry,
Speaker 4: that are surmountable. And that wasn't usually the case. Traditionally
Speaker 4: the viewers that if the FTC or DOJ came out
Speaker 4: against your deal, the deal probably died. You probably said, well,
Speaker 4: you know what, even if we have a shot at
Speaker 4: winning this in court, it's you know, it's ultimately it's
Speaker 4: probably going to break up. Now I think companies are
Speaker 4: thinking about this bit differently and saying, you know, if
Speaker 4: we want to do this deal, we're going into it
Speaker 4: with the expectation that we're going to have to fight,
Speaker 4: and so that being baked into the assumptions about why
Speaker 4: they're going to do the deal, they're much more willing
Speaker 4: to go through the whole process with the FTC.
Speaker 1: Does it make the bar higher or harder for deals
Speaker 1: because of that?
Speaker 4: It should do. It should mean that, you know, deals
Speaker 4: that sort of don't make any sense and that would
Speaker 4: probably get litigated against in any regulator environment are less
Speaker 4: likely to happen. But I think, you know, we've seen
Speaker 4: a real chilling effect on deals obviously that the reason
Speaker 4: they've done this has been, you know, very aggressive against
Speaker 4: deeals is because they do want to have a chilling
Speaker 4: effect on M and A. They want to slow down
Speaker 4: M and A. And it's worked so far. There has
Speaker 4: been like a significant drop off in the number of
Speaker 4: deals being announced, but I think that could flip back,
Speaker 4: particularly if we get later into the Biden administration, in
Speaker 4: terms of companies being in bold and as I say,
Speaker 4: try and push through some of these things.
Speaker 1: Yeah, all right, well, Ed Hammond, thank you so much
Speaker 1: for joining us. Really appreciate it. You can read Ed's
Speaker 1: story of course on the terminal FTC surrenders its best
Speaker 1: weapon in anti trust battle.
Speaker 2: That's from Bloomberg.
Speaker 1: Opinions, Ed Hammond, continue and follow us here on Bloomberg
Speaker 1: Law for all of the legal news you need throughout
Speaker 1: the week. I'm Madison Mills in for June Graso, and
Speaker 1: this is Bloomberg