What the Microsoft-Activision Ruling Means for the Future of Deal-Making

A reckoning for Lina Khan

A federal judge’s decision to let Microsoft close its $70 billion takeover of the video game maker Activision Blizzard didn’t just represent a win for the tech giant. It’s also a major blow to the F.T.C., which had sought to block the transaction.

That leaves Lina Khan, the agency’s chief and a proponent of more expansive antitrust regulation, confronting a difficult question: Is her strategy of aggressively fighting mergers backfiring and actually encouraging more dealmaking?

Microsoft is close to clinching the deal. In her 53-page ruling, Judge Jacqueline Scott Corley wrote that the F.T.C. had failed to show that Microsoft buying the maker of Call of Duty would substantially reduce competition in the video game market.

In further good news for Microsoft, Britain’s Competition and Markets Authority — the last remaining regulator opposed to the transaction — said on Tuesday that it was now willing to hear settlement proposals from the company. That means the Activision deal, the largest tech acquisition ever, could close as soon as next week. (The transaction’s deadline is July 18.)

Tuesday’s ruling was the latest setback for Ms. Khan’s F.T.C., which abandoned a fight earlier this year against Meta’s purchase of a virtual reality start-up. And last fall, the F.T.C. suffered a defeat on what it had assumed was friendlier ground: A judge in its own administrative court rejected the regulator’s argument that the gene-sequencing company Illumina’s $7 billion takeover of Grail, a cancer-detection specialist, was unlawful.

Ms. Khan is unlikely to change course, at least for now. The F.T.C. could appeal Judge Corley’s decision as soon as Wednesday. Its argument may revolve around what Robert Lande, a professor at the University of Baltimore School of Law, told DealBook was the judge’s reliance on an erroneous legal standard about the likelihood of reduced competition.

And Eleanor Fox, a professor at N.Y.U. School of Law, told The Times that Ms. Khan’s more expansive approach was more in line with what regulators in Europe and Britain are doing. (That said, E.U. officials cleared the Activision deal in May.)

But skeptics say the F.T.C. is in a weaker position. One corporate adviser told DealBook that the agency’s losses were strengthening the boundaries of existing antitrust jurisprudence. “Khan is trying to do very ambitious things against very entrenched ideology,” Anu Bradford of Columbia Law School told DealBook. “This ruling suggests that courts may not be ready.”

Dealmakers are feeling increasingly emboldened. Executives and advisers told DealBook that companies are willing to roll the dice when it comes to ambitious deals. (Of course, they cautioned, it all depends on each situation’s circumstances.)

Many still see the F.T.C. suing to block big transactions, but they believe the agency’s repeated losses mean they stand a better chance of winning in court.

In other antitrust news: E.U. regulators fined Illumina 432 million euros ($476 million) for closing its Grail deal without obtaining Brussels’ approval. They’re also reportedly poised to approve Broadcom’s $69 billion takeover of the cloud software maker VMware.

HERE’S WHAT’S HAPPENING

Bank of America is fined $150 million. Federal regulators accused the lending giant of withholding promised perks from credit card customers, double-charging overdraft fees and opening card accounts in customers’ names without their knowledge or consent. The penalty reflects in part the Biden administration’s effort to punish companies over what it calls “junk fees” that it says hurt consumers.

Senators will scrutinize the prospect of more bank mergers. The Senate Banking Committee will hold a hearing on Wednesday on the issue, in light of the chaos wrought by Silicon Valley Bank’s collapse this spring. Treasury Secretary Janet Yellen has suggested more mergers could strengthen the banking system; Senator Elizabeth Warren, the committee’s Democratic chair, is skeptical of the argument.

Another big insurer pulls out of Florida. Farmers said it would stop offering coverage in the state, ending about 100,000 policies, citing a need to “manage risk exposure.” It’s the fourth insurance provider to curtail its business in Florida as the state battles more natural disasters amid climate change.

Tesla reportedly investigates a company-funded house for Elon Musk. Known internally as “Project 42,” the proposal called for an expansive glass-walled structure near the electric carmaker’s Texas headquarters, according to The Wall Street Journal. Board members scrutinized the plan to see if company money was misused, though The Journal said the outcome of the project and the inquiry couldn’t be determined.

Lifting the lid on the PGA-LIV talks

The PGA Tour came under fire on Tuesday in a Senate hearing over its proposed deal involving LIV Golf, its Saudi Arabia-backed rival. The deal could see the kingdom pour more than $1 billion into the sport, but the agreement has been slammed by lawmakers, and the Justice Department is expected to examine it.

Here are key takeaways from the hearing and documents released by the Senate:

The deal was announced before it was done. Jimmy Dunne, the investment banker and PGA Tour director who helped orchestrate it, said the “rollout was very misleading and inaccurate, which is everyone’s fault.” He said no merger had been agreed upon.

Michael Klein, the veteran dealmaker and an adviser to Saudi Arabia, pushed the two sides to release information, according to the documents. “The announcement is too big to wait till the definitive. If we don’t put the messages out others will fill in,” he wrote to the parties involved in an email. “The worst thing we can do is have naysayers lead the chorus.”

The PGA Tour felt it had no choice. Mr. Dunne and the tour’s chief operating officer, Ron Price, told the hearing that the billions behind LIV made it impossible for the PGA Tour to fight back indefinitely. The wealth fund wanted “to destroy the tour,” Mr. Dunne said, and is backed by “an unlimited horizon and an unlimited amount of money.”

The dealmakers defended keeping the board and players in the dark. “We were really afraid that once the other side’s lawyers learned anything about it, it would be poof, gone,” said Mr. Dunne, who was one of the main negotiators along with Ed Herlihy, a partner at Wachtell and a fellow director.

The PGA Tour executives were given a list of people and sponsors to call on the day the deal was announcemed. Top of the order for Jay Monahan, the tour commissioner: Rory McIlroy, a director and one of the most vocal critics of LIV Golf, and Tiger Woods. One proposal floated the idea of the two players owning LIV teams.

Exclusive memberships for a top Saudi official were proposed. The Saudi wealth fund raised the idea that Yasir al-Rumayyan, its governor, could get memberships at Augusta National Golf Club and the Royal and Ancient Golf Club of St. Andrews as part of the deal. Neither of the clubs is controlled by the PGA Tour, but both Mr. Dunne and Mr. Herlihy are members at Augusta.

The key question: governance. Mr. Dunne reiterated that the PGA Tour would still be in charge, despite the Saudi money. “What I can tell you is that the tour will continue to manage the game,” he said. “The tour will appoint a majority of the board of directors.”

“The endgame is to allow things to drag on until union members start losing their apartments and losing their houses.”

— An unnamed studio executive who told Deadline that Hollywood is planning to let the weekslong writers’ union strike continue into the fall, inflicting economic pain. Actors could join the writers on the picket line as a midnight deadline looms.

Tech giants face new A.I. cases

Chatbots and generative artificial intelligence have captured the public’s imagination, with the technology’s biggest proponents saying it could add trillions in economic value over the next decade. It is also spawning lawsuits that pose vexing new issues for courts and companies.

On Tuesday, Google was sued in a putative class action in federal court in California that accused the company of violating privacy laws and committing “ongoing theft” by scraping internet users’ online data to train its chatbot without their consent. The Google case, and a parallel one filed last month against Microsoft and OpenAI, the maker of ChatGPT, demands that the tech companies compensate internet users for this data appropriation.

The cases represent “an evolution of people’s understanding of the value of data,” said Tracey Cowan, a partner at Clarkson, which filed the suits. People increasingly understand that their internet footprint — think posts and likes — holds economic value to tech companies. In the social media economy, an industry of data brokers emerged to buy and sell such data. In the A.I. age, similar data is being used to train new generative A.I. tools.

For this reason and others, tech executives themselves, including OpenAI’s C.E.O., Sam Altman, have called on lawmakers to regulate A.I. in recent months.

The suits go a step further, adding to the public cries for a temporary halt to the commercialization of A.I. pending the development of guidelines. “We are all just guinea pigs in their experiment,” said Ryan Clarkson, a partner at the firm. In the meantime, the suits call for letting users opt out, so they can better control how tech firms use their data.

“We’ve been clear for years that we use data from public sources — like information published to the open web and public datasets — to train the A.I. models behind services like Google Translate, responsibly and in line with our A.I. Principles,” said Halimah DeLaine Prado, general counsel at Google. “American law supports using public information to create new beneficial uses, and we look forward to refuting these baseless claims.” Microsoft declined to comment; OpenAI did not respond.

The comedian Sarah Silverman has also joined the A.I. litigation fray, signing onto separate litigation against OpenAI and Meta for copyright infringement. She is the latest big-name creator demanding that A.I. companies that use their intellectual property first license it.

THE SPEED READ

Deals

ByteDance, the parent company of TikTok, is reportedly letting American employees cash out their shares in the Chinese tech giant ahead of any I.P.O. (Reuters)

Nvidia is said to be in talks to become a cornerstone investor in the forthcoming I.P.O. of Arm, the British chip designer. (FT)

The tech mogul Sam Altman plans to merge Oklo, a nuclear energy start-up he has backed, with a blank-check vehicle he created, taking the company public. (WSJ)

Disney is reportedly weighing a sale of its Star India business, amid growing losses at the division after it lost the streaming rights to Indian Premier League cricket matches. (WSJ)

Policy

Chinese hackers broke into several U.S. government email accounts to gain access to sensitive information, according to Microsoft. (NYT)

“The new era of big government: Biden rewrites the rules of economic policy” (FT)

Best of the rest

“How a Houston Oilman Confounded Climate Activists and Made Billions” (WSJ)

“How to Revive a Dying Main Street? One U.K. Landlord Offered Free Rent.” (NYT)

A handwritten document found under a couch cushion is Aretha Franklin’s true will, a jury ruled, potentially resolving a bitter dispute over the singer’s estate. (NYT)

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Andrew Ross Sorkin is a columnist and the founder and editor at large of DealBook. He is a co-anchor of CNBC’s “Squawk Box” and the author of “Too Big to Fail.” He is also a co-creator of the Showtime drama series “Billions.” More about Andrew Ross Sorkin

Ravi Mattu is the managing editor of DealBook, based in London. He joined The New York Times in 2022 from the Financial Times, where he held a number of senior roles in Hong Kong and London. More about Ravi Mattu

Bernhard Warner joined the The Times in 2022 as a senior editor for DealBook. Previously he was a senior writer and editor at Fortune focusing on business, the economy and the markets. More about Bernhard Warner

Sarah Kessler is a senior staff editor for DealBook and the author of “Gigged,” a book about workers in the gig economy. More about Sarah Kessler

Michael de la Merced joined The Times as a reporter in 2006, covering Wall Street and finance. Among his main coverage areas are mergers and acquisitions, bankruptcies and the private equity industry. More about Michael J. de la Merced

Lauren Hirsch joined The Times from CNBC in 2020, covering deals and the biggest stories on Wall Street. More about Lauren Hirsch

Ephrat Livni reports from Washington on the intersection of business and policy for DealBook. Previously, she was a senior reporter at Quartz, covering law and politics, and has practiced law in the public and private sectors.   More about Ephrat Livni

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