What American law says about the possible merger
In a business move that was called by Phillip DeFranco as the “golden parachute” and was called “pulling the emergency cord” by TechCrunch, Microsoft is attempting to buy Activision Blizzard for $68.7 billion.
Microsoft isn’t new to acquiring other gaming companies. In March 2021, they acquired Bethesda, known for titles such as the Elder Scrolls series, Doom and Fallout for $7.5 billion. And, in 2014 Microsoft purchased Minecraft, arguably the most successful video game of all time for $2.5 billion.
The Activision Blizzard company has produced many famous titles including but not limited to Call of Duty, Overwatch, Diablo, Candy Crush and World of Warcraft.
Their attempt at purchasing Blizzard is so newsworthy because Blizzard has been in news over the last year for some not-so-great things. I am of course referring to their rampant sexual harassment scandals over the summer.
Blizzard’s CEO Bobby Kotick is rumored to be stepping down as well. He has been broiled in scandal and controversy. Over 1,000 employees signed a petition asking him to resign alleging that he knew of the toxic culture, rape allegations and sexual misconduct at Blizzard.
Another 2,000 signed a petition calling their discriminatory lawsuit abhorrent and insulting, and that doesn’t even mention the multiple walkouts the studio has had.
Needless to say, their record isn’t looking great, and that’s what many of the articles around this potential merger are focusing on.
What does antitrust mean?
Now if you’re unfamiliar with antitrust laws, I can guess why this may not even cross your mind. Afterall, politics and law can be super boring. That’s why I went and read the Federal Trade Commission’s history and definition of antitrust law so you don’t have to. You’re welcome.
First, what does antitrust mean? Google defines antitrust as, “Relating to legislation preventing or controlling trusts or other monopolies, with the intention of promoting competition in business.”
In layman’s terms, this means that that are laws that prevent companies from growing too large and being able to rack up prices on consumers without having any competitors. Competition is important because it allows consumers to demand quality goods and services at reasonable prices.
A capitalist society needs competition. One company should not be able to hold the sole supply of an item.
The Sherman Act bans “every contract, combination, or conspiracy in restraint of trade.” The bill also regulates “monopolization, attempted monopolization or conspiracy or combination to monopolize.”
Basically, you cannot merge companies with intent to monopolize. Businesses can not join together with the intent to fix prices or to rig bids.
Next, is the FTC Act, which established the Federal Trade Commission. Anything that breaks the FTC Act is also a violation of the Sherman Act.
The act “outlaws unfair methods of competition and unfair acts or practices that affect commerce.” The Federal Trade Commission’s website puts it very concisely, “The FTC Act also reaches other practices that harm competition, but that may not fit neatly into categories of conduct formally prohibited by the Sherman Act”.
Finally, we have the Clayton Act. Now here is where it gets spicy. The Clayton Act explicitly prohibits things that the Sherman Act does not. It prohibits mergers, or the same CEO making decisions for competing companies.
The FTC’s website again says quite plainly that, “the Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”
What does this mean for the proposed merger?
Historically, the government has denied mergers and acquisitions of this size. In 1998 Exxon and Mobil, two oil companies, tried to merge in a deal worth $80.3 billion. After examination by the FTC, the merger was denied because it violated antitrust laws.
AT&T and T-Mobile also tried to merge in a deal that was another $15 billion. Again, after investigation by the FTC the deal ended up being called off.
So, it is completely possible that even though these companies have every desire to marry and for Activision Blizzard’s difficult year to become old news, it may not happen. A $68.7 billion deal is definitely worth reviewing.
Both companies are massive with very impressive games under their company umbrella, so it could be bad for consumers for this to take place.
However, the saving grace that may allow this to pass in the first place is XBOX’s Game Pass. A deal like this is going to put Microsoft in one of the largest most competitive spots in the industry. In fact, it would be No. 3 in terms of revenue only behind Tencent and Sony.
But if Microsoft does acquire these titles, it would allow for them to make some titles that were not already available on Game Pass, available to more players. It makes the Game Pass overall worth more.
But don’t take me at my word. Microsoft said on its own website about the acquisition, “With Activision Blizzard’s nearly 400 million monthly active players in 190 countries and three billion-dollar franchises, this acquisition will make Game Pass one of the most compelling and diverse lineups of gaming content in the industry.”
So, if this deal passes, which it very well may not, it will completely shake up the gaming industry as we currently know it to be. And it would be a fantastic time to start playing games on XBOX.