When megamergers fall apart
British antitrust regulators blocked Microsoft's $69 Billion bid to purchase gaming giant Activision Blizzard on Wednesday, threatening the deal to be killed off completely. The decision raises the question of how often deals break down after they are signed.
Just 33 of the 3,347 bids made to purchase an American company this year have been withdrawn. As was the case with the Activision acquisition announced last year, some of these deals could have been made in previous years. In 2022, almost 12,000 deals of this type were announced, and 142, worth $170 billion total, were withdrawn.
The failure of a transaction can be due to a variety of factors, but regulators are usually concerned that the merger will have a negative impact on the consumers or the nation as a whole. Regulators are increasingly making their case. The number of transactions pulled last year was the highest in 20-years, though this may be partly because 2021 saw a record number deals.
Microsoft's Activision Bid: What you need to know
Microsoft announced on Jan. 18, 2022 that it would buy Activision Blizzard for $69 billion, the maker of popular games such as Call of Duty and Candy Crush. This acquisition would propel Microsoft to a top spot in the $175 million gaming industry.
Major setback. Microsoft's bid was rejected by a British regulator on April 26. The British Competition and Markets Authority's ruling could have been fatal to the deal, which would have been the largest consumer technology acquisition since AOL acquired Time Warner in 2000.
British officials claimed that the deal would threaten the competition in the cloud gaming market. Similar arguments are used by governments to block tech deals, frustrated at the speed Silicon Valley companies rush to dominate new technologies.
Dealmakers claim that increased regulatory scrutiny has a chilling effect on the deal-making process. The value of announced deals in 2022 fell by nearly 60% from 2021, despite a notable increase in activity in 2021.
Dealmakers report that it is becoming increasingly difficult to predict when authorities will decide to block or approve a deal. This uncertainty is especially high for companies that are looking to purchase emerging technologies like cloud gaming.
There have been several headline-grabbing deals in the United States that have been successfully blocked by regulators under President Biden. These include Penguin Random House’s plan to purchase Simon & Schuster and the merger between insurance giants Aon & Willis Towers Watson last year.
Even when it comes to deals that involve companies with headquarters outside of their own borders, global regulators are stepping up, like the British did in the case of Microsoft and Activision. Last year, the European Union's Competition Authority blocked the biotechnology company Illumina from acquiring Grail despite Illumina's claim that Grail had no business in Europe.
Deals can also fall apart due to national security concerns. Broadcom's purchase of Qualcomm, its rival chip manufacturer, failed after a U.S. Government panel claimed that the deal would give a competitive advantage to Chinese companies such as Huawei.
Some companies seem willing to bet on deals that pass a thorough inspection. Justice Department sued to stop JetBlue from acquiring Spirit Airlines. This was widely expected, given the consolidation of the airline industry. Both airlines are defending their merger and pushing for a similar outcome to UnitedHealth Groups purchase of Change Healthcare after they convinced a U.S. District Court Judge to overrule the Justice Department's suit to block it.
Many mergers are averted because companies know that there is the risk of the deal not going through. This is why contracts often include a protection clause, such as a fee paid by one party to the other in the event regulators decide to break up the deal. In an effort to combat possible regulatory pushback, companies have built in longer deadlines for closing their deals.
The move by Britain to block Microsoft's acquisition of Activision is a response to the pressures facing big technology companies and the current economic climate, which has made it more difficult to finance deals. This could indicate that the already slowing deal market will get even more difficult in 2013.