Microsoft’s 21-month battle to complete its blockbuster acquisition of gaming company Activision Blizzard is one of the most checkered recent saga in the M&A world.
The fight is a dramatic demonstration of the power of a machine of law, policy and influence that costs more than $1 billion a year to run and has made Microsoft one of the most effective American companies practicing a new form of global enterprise. diplomacy to advance their interests.
The smooth passage of the Activision Blizzard deal means defeating the US government’s efforts to block the deal in court, while also convincing UK regulators to allow a last-minute reworking of a deal they had already decided to reject.
It also involves winning over regulators in many other jurisdictions — including Brussels, where Microsoft was once deeply mistrusted — at a time when big tech acquisitions face strong opposition.
The deal, completed against all odds, marks the culmination of more than two decades of efforts to rebuild the reputation of a company once seen as a juggernaut in the tech world.
Under Brad Smith, who became Microsoft’s top legal officer in 2002 and became president in 2015, Microsoft has long worked to present a more conciliatory side to regulators.
It also seeks to make itself useful to governments seeking help on everything from technology policy to emergency support against cyberattacks, a move that builds trust and increases the likelihood of winning hearings when its own business interests are challenged. a part of.
However, while closing the deal at a time when big tech acquisitions are rare would represent a notable win, it could also spell a turning point in Microsoft’s relationship with regulators around the world.
“It helps remind everyone that they are a big tech company, too,” said a former Microsoft policy executive.
Smith took over as general counsel at a low point for the company, after the U.S. Department of Justice nearly won a court-ordered breakup case. His rise brought a radical change in approach. While Microsoft has previously waged bitter battles with regulators, Smith has advocated for settlement and touted the need for more transparency with regulators.
He also pushed Microsoft to change its business practices to thwart potential antitrust challenges, according to people who have worked with him. Last year, in the face of complaints that Microsoft’s cloud licensing practices could trigger antitrust scrutiny, Microsoft’s president publicly apologized and announced changes he said would address the complaints.
That pre-emptive approach, however, hasn’t stopped the outcry from growing louder — a sign that the strategy that has served Microsoft well over the past two decades may become less effective as it grows its influence in markets such as cloud computing. Not as effective.
Some of the strategies that have helped it boost profits over the years are also being challenged. This week, the company revealed it had received a demand from the United States for nearly $29 billion in back taxes from 2004 to 2013 amid claims it artificially lowered taxes on profits from low-tax countries.
In another sign of growing pressure on the company, Smith, usually a consummate diplomat, had a rare outburst in April after British regulators said they would block the Activision Blizzard deal. He told the BBC that the move was “bad for the UK” and was Microsoft’s “darkest day in forty years”.
However, the software company was still able to convince the UK Competition and Markets Authority to reconsider, striking a compromise that ultimately allowed the agency to approve the deal while also enabling it to extract larger concessions from Microsoft than other regulators.
While Microsoft’s victory depends largely on a fierce legal battle and negotiations with regulators, it also reflects years of efforts to put the company in a stronger position. Behind the scenes, Smith has driven a coordinated influence-building campaign with governments around the world that even some rival tech executives admit has given Microsoft an advantage.
The software company has assembled “one of the largest corps of corporate diplomats we have ever seen,” said Manas Chawla, a researcher who studies the company. “These include policy officials working on everything from how to regulate artificial intelligence to protecting elections and responding to cyberwarfare against sovereign states,” he said.
In a sign that Microsoft is further along than other tech companies, it opened a representative office at the United Nations in 2020, occupying a floor of a building near the organization’s headquarters in New York, where several NATO countries also have representation at. Task. Ukrainian President Volodymyr Zelensky is the first head of state to visit China to encourage the company to invest in Ukraine, and Microsoft hopes to use the engagement to boost its cybersecurity capabilities.
The U.N. effort is part of an effort under Smith that has annual operating costs of more than $1 billion, according to people familiar with the company. Teams reporting to him within Microsoft include legal, corporate and government affairs, which Microsoft says has about 2,000 “professionals.” His organization also includes a digital crime unit and a team dedicated to identifying cyberattacks and misinformation campaigns.
Microsoft’s attempts to take the moral high ground on issues such as cybersecurity have angered rivals who claim the company is using its work with governments to divert attention from the role that vulnerabilities in its own software play in causing problems. . Earlier this year, for example, U.S. Commerce Secretary Gina Raimondo was one of several officials whose emails were leaked after Microsoft’s online email account was hacked.
Another former Microsoft executive said the company’s broad international policy work reflects a deep belief that a commitment to advancing multilateralism and the rule of law around the world will yield long-term benefits for the company and its customers.
But this person also said that these activities also serve Microsoft’s more direct business interests: “One of the things we learned from competitive cases is: before you encounter difficult problems, build relationships, attract people and let people understand your business. The effect will be better.” This basic lesson has stayed with the company. “
Smith’s attempts to shape important policy discussions around technology have led him to advance ambitious positions on the global stage, although they have not always achieved the intended goals. Six years ago, he called for a “Digital Geneva Convention” that would require nation-states to vow not to conduct cyberattacks on civilians in peacetime.
Microsoft took a backseat to the plan, realizing that if it failed to gain support from a majority of the United Nations’ 193 member states, the proposal could be reshaped in ways the company had not envisioned, according to a former employee. “Be careful what you wish for,” the man added. Another person familiar with the Digital Geneva meeting said Microsoft has not given up on the idea and that it remains a long-term “moonshot” for the company.
Supporters say Smith’s willingness to establish himself as an unofficial ambassador for the tech industry in this way has paid dividends for Microsoft. “The regulators won’t give you a pass, but they will listen to you – you will hopefully give them a credible voice, and that’s what really matters,” said one former executive.
The strategy appears to be paying off as Microsoft finally completes its largest acquisition ever.
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