We recently wrote about how antitrust law, or rather changes in how antitrust law is applied may affect your investments. The Federal Trade Commission (FTC) is not waiting for monopolies to dominate industries and then go after them. They are now trying to block takeover and mergers before they create or strengthen monopolies. The most recent company in the crosshairs of the FTC is Microsoft. How will Microsoft’s fight with the FTC affect your investments?
FTC Wants to Block Microsoft Acquisition of Activision Blizzard
The New York Times is covering the story of how the FTC is attempting to block Microsoft’s takeover of Activision Blizzard. The point that they make in the article is that this story is bigger than Microsoft and its takeover plans. It has to do with reworking how the FTC deals with monopolies by preventing them instead of taking them apart after they come to exist. This will be a $69 billion deal in the video game niche. The FTC argument is that Activision Blizzard has more than a third of a billion users every month of games like Candy Crush and Call of Duty. Meanwhile Microsoft owns the Xbox platform for video games. The concern is that if Microsoft controls the content, they will deny it to other platforms other than Xbox. Microsoft says that would not make economic sense but has a history of doing just that in Europe after promising regulators there that they would not. Now it turns out that regulators in the UK and EU may follow the lead of the FTC.
Monopolies and Vertical Versus Horizontal Mergers
Going back to the era of the Standard Oil breakup, the targets of trustbusters and the FTC have been companies that controlled all or most of a business niche. Companies that controlled related parts of an industry but did not try to take over direct competitors were generally spared. This approach missed mergers and acquisitions that allowed a company to control a business niche without actually taking over direct competitors. The current head of the FTC, Lina Kahn, hopes to expand the reach of the FTC in controlling mergers and acquisitions, especially as it applies to big tech companies.
The Federal Trade Commission was set up to protect consumers by promoting competition. Thus the FTC goes after anticompetitive practices anywhere within the scope of American business. Although the mission of the FTC is not to protect investors, by breaking up or preventing monopolies investors commonly benefit. As such it is our hope that the FTC succeeds in its efforts to rewrite the law in regard to anticompetitive practices and specifically in regard to the continual growth and influence of big tech companies as they come to exert so much influence on American society and business. None of this necessarily means that one should run out and buy or sell Microsoft or Activision Blizzard but that over time there may be more and more investment opportunities within the tech space and fewer companies being eaten up by a handful of growing giants like in the days of Rockefeller, Carnegie, Melon, Vanderbilt, and Jay Gould.
One of the best investments one could have made ever would have been to buy Microsoft the day it went public. The stock is a thousand times more valuable now than it was then, and the annual dividend is many times that of the original stock price. By preventing small companies from being taken out of the mix by takeovers the FTC will provide investors with more opportunities to benefit from the next set of Microsoft lookalikes instead of having them disappear before their real growth occurs.
How Will Microsoft’s Fight with the FTC Affect Your Investments? – SlideShare Version