What Microsoft’s Activision Setback Means for Deal Making

The risks of doing deals

A British regulator’s decision to reject Microsoft’s $69 billion takeover bid for Activision Blizzard stunned many who had expected the deal to go through. That’s especially because moves this month by the agency, the Competition and Markets Authority, suggested that the transaction might pass muster.

But the decision only reinforces the current reality: More assertive regulators around the world present an additional challenge for corporate buyers at a time when deal makers are hoping to revive a moribund market for mergers and acquisitions.

The agency continues to flex its growing regulatory muscle. Though it narrowed the scope of its Activision deal inquiry to just one issue, cloud gaming, the C.M.A. said that letting Microsoft buy the Call of Duty maker could give the tech giant too much power over the video games market.

Most likely emboldening the agency is how unlikely an appeal of its decision is to succeed, according to Pablo Ibáñez Colomo, a law professor at the London School of Economics. The tribunal that will weigh Microsoft’s appeal will examine mainly whether the regulator followed proper procedure. That institutional advantage positions the agency as one of the world’s most influential antitrust enforcers, alongside those in the United States and the European Union.

Global regulators are reviewing deals more closely now. In the United States, it’s because of an ideological shift to oppose big companies from getting unduly bigger. And political reasons sometimes factor in: Consider that Berlin is scrutinizing Carrier’s about $13.3 billion takeover of Viessmann, a German maker of heat pumps, to ensure that the country remains competitive in renewable energy technologies.

Big deals are still on the table. The Swiss commodities giant Glencore, for instance, is still interested in buying Teck Resources, for at least $22.5 billion after having defeated a defensive move by the Canadian mining company.

Deal makers say that M.&A. is still very much possible, if corporate buyers are willing to fight in court and are prepared to see transactions fail. (Just under 1 percent of announced deals have been withdrawn this year, running slightly lower than last year’s rate.)

Microsoft said on Wednesday that it would defend the Activision bid. But with a looming July 18 deadline for the deal and shareholders seemingly undisturbed by the legal setback, some analysts think the Xbox maker ultimately may accept defeat, fork over the $3 billion breakup fee and move on.

HERE’S WHAT’S HAPPENING

U.S. economic growth is slowing. The government is due to release data at 8:30 a.m. Eastern showing that first quarter gross domestic product probably rose 1.9 percent, down from 2.6 percent the previous quarter. The data should give a clearer picture about whether investors are right to fear a possible recession in the second half of the year.

House Republicans pass their debt limit bill. Speaker Kevin McCarthy cobbled together enough caucus members to narrowly approve his proposal, which would raise the debt ceiling for one year and calls for sharp spending cuts. That strengthens his hand in negotiating with President Biden, though the bill is unlikely to pass in the Democratic-controlled Senate.

First Republic’s shares are still sliding. Shares in the beleaguered lender fell about 30 percent on Wednesday, ending at $5.69 — down from $150 a year ago — as it casts about for a lifeline. Executives and advisers continue to believe that the federal government must play some role in devising a solution.

Samsung’s quarterly earnings tumble 95 percent. The Korean electronics giant on Thursday reported its lowest operating profit since 2009, driven by weak demand for memory chips and other semiconductors. Still, Samsung predicts a recovery this year as it cuts back on production.

Chinese officials question Bain & Company employees. The consulting giant said that the authorities had visited its Shanghai offices this month, and that it was “cooperating as appropriate”; it didn’t specify what the inquiry was focused on. The raid, which comes after a similar move on another American consulting firm’s offices, reflects the economic tensions between Washington and Beijing.

A.I. is the big buzzword in tech earnings

Big tech was extending its 2023 rally on Thursday.

Meta shares jumped more than 12 percent premarket on stronger than expected revenues last quarter as digital ads rebounded, user numbers increased and investor attention shifts to the prospect of artificial intelligence-fueled growth from job cuts.

Microsoft and Google set the bullish tone on Tuesday. Shares in the tech giants climbed after the companies reported solid results and elaborated on their visions for how A.I. will be incorporated into their core software and search products. Amazon will report its quarterly earnings on Thursday, and is expected to update investors on how it is positioned in the A.I. arms race.

Satya Nadella, Microsoft’s C.E.O., mentioned “A.I.” or “OpenAI” at least 29 times in his 15-minute introductory remarks to analysts on Tuesday. He said he viewed A.I. as a “generational shift,” and it is seen as the company’s best chance at catching Google in search.

Mark Zuckerberg, the C.E.O. of Meta, spent about six minutes talking about A.I. in his intro on Wednesday, Bloomberg reported, and just 90 seconds on the metaverse, the immersive world the company is building that’s slow to take off. (Mr. Zuckerberg emphasized that the group was not pulling back from the metaverse.)

A.I. will “impact every single one of our apps and services,” he told analysts, adding that it was already “improving monetization.” Instagram is one example. “Since we launched Reels, A.I. recommendations have driven a more than 24 percent increase in time spent on Instagram,” he said, referring to the short-video clip feature that’s a big growth engine for the company and an attempt to reclaim market share from TikTok.

Another promising metric: In March, three billion average daily users logged into Facebook, Instagram and WhatsApp, the company said, helping reverse a slide in sales in the previous three quarters.

One thing to watch: costs. Both Microsoft and Alphabet said they were holding the line on expenses, but advancing A.I. requires a lot of investment. Meta said it was staffing up its generative A.I. team this year, and would spend more the technology, while Ruth Porat, Alphabet’s C.F.O., warned that R.&D. costs would be “modestly higher.”

Disney v. DeSantis goes to court

The fight between Disney and Gov. Ron DeSantis entered a combative new round on Wednesday, after the media giant sued Florida’s governor and the board that oversees government services at its resort in the state. The company accused him of waging a “targeted campaign of government retaliation,” and filed a First Amendment lawsuit. The bigger question: Will the battle damage Mr. DeSantis’s potential presidential hopes?

Disney accused Mr. DeSantis of weaponizing government power in retaliation for the company criticizing what opponents call the “Don’t Say Gay” law, a state measure that barred discussion of sexual orientation and gender identity in some schools. “In America, the government cannot punish you for speaking your mind,” the complaint said.

Taryn Fenske, a spokeswoman for Mr. DeSantis, dismissed the lawsuit as an attempt “to undermine the will of the Florida voters.”

Mr. DeSantis sees political mileage in taking on Disney. The company is one of the state’s biggest employers and said it had earmarked $17 billion to expand over the next decade. But he has hammered it over its stance on social issues to shore up his backing among conservatives in his home state.

But his tactics could be damaging in a national campaign. Polls — including one by Harvard/Harris and another by Reuters/Ipsos — are generally split on whether this is helping his appeal with voters.

Potential rivals for the Republican nomination see an opening:

• Former President Donald Trump called the Disney fight a “political stunt.”

• The former New Jersey governor Chris Christie said it was anti-conservative.

• Nikki Haley, the former governor of South Carolina, even pitched for the business. “Hey@Disney, my home state will happily accept your 70,000+ jobs if you want to leave Florida,”she tweeted, adding, “SC’s not woke, but we’re not sanctimonious about it either.”

Tucker Carlson breaks his silence

Two days after being fired from Fox News, Tucker Carlson emerged on Twitter … with a two-minute video that didn’t address his shocking ouster. But he may have offered a hint about what he’ll do next after his surprise exit from Rupert Murdoch’s media empire.

Mr. Carlson criticized the state of political discourse, saying, “both political parties and their donors have reached consensus on what benefits them and they actively collude to shut down any conversation about it.”

“Where can you still find Americans saying true things? There aren’t many places left,” Mr. Carlson added. “But there are some. And that’s enough.” He concluded with “See you soon,” suggesting that he may return to the public forum, either on his own or as part of some news media outlet.

More details have emerged about Mr. Carlson’s firing. The Times reports that just before Fox News’s defamation trial was set to begin, the Fox board belatedly learned more about highly offensive and crude remarks that the host had made privately — and that surfaced as part of the legal discovery process.

The full extent of what he said is still not known, but news outlets have challenged court-ordered redactions of the private messages, and the communications could still emerge in a lawsuit against Fox News filed by the voting software maker Smartmatic.

THE SPEED READ

Deals

• Struggling companies are increasingly trying to restructure their debt out of court to avoid bankruptcy, but many still fail to do so. (FT)

• The private equity owners of Millennium Trust may put the retirement plan custodian up for sale, with a price tag of as much as $8 billion. (Reuters)

Policy

Best of the rest

• Pras Michel, a founding member of the Fugees hip-hop group, was convicted of running an illegal lobbying and political donation scheme on behalf of the Malaysian businessman behind the 1Malaysia Development Berhad scandal. (NYT)

• Twitter’s mass removal of verification check marks has led to an uptick in misinformation on the social network. (NYT)

• Win Bischoff, a decorated British banker who served as chairman of Citigroup, died on Tuesday. He was 81. (Reuters)

• “Watch an A.I. Learn to Write by Reading Nothing but Jane Austen.” (NYT)

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