I posted this on page 167 in November 2022 :p (this thread moves fast xD).
I guess that now is a good time to post it again as a reminder:
I think that it's important to talk about third party strategies in mergers, what Sony is doing and (probably) why.
Third parties can oppose to a potential transaction in their industry taking proactive steps to challenge a deal: 1) encouraging the regulators to block it; 2) filing a private civil suit or 3)even lobbying politicians.
But first of all, what is a third party in this case?
- Customers (Users from Xbox or ABK, for example)
- Competitors (Sony or Nintendo)
- Suppliers (Take-Two, Electronic Arts or any indie developer)
- Distributors (From Steam in digital to GAME in retail)
- Wholesalers (GameStop, for example)
- Advocacy groups (the Communications Workers of America, for example)
Opposing a transaction has pros and cons, but more than once has been a successful strategy. For example, when in 2014 Comcast announced its intent to acquire Time Warner, Netlix (among others) opposed to it, influencing the DOJ very early. The transaction was finally abandoned.
When a third party complains to the regulator during the review process, it's mainly for 4 reasons.
- To influence the regulator to investigate particular aspects of a transaction
- To encourage regulators to make a formal legal challenge or reject the deal
- To help regulators to shape an eventual merger remedy
- To obtain the merging parties' divested assets
While the complaints that usually carry more weight are the ones from customers, the ones from competitors can also be relevant. In fact, even more in vertical mergers where foreclosure is a potential key issue (like this one). In any case, regulators are always skeptic about a competitor opposing a merger because their interests usually diverge from the interests of the consumer. But competitors can be helpful for regulators because they are well-placed to offer concrete, relevant and detailed facts that regulators may find useful in developing theories and arguments.
If a third party wants to oppose a transaction, they have to start as soon as possible. Early involvement can help set the tone for the investigation, including what the regulators view as key issues and whom the regulator approaches for information. It looks like Sony approached regulators in April - May (the start of the first review processes) and from the info shared by CADE and the CMA it's obvious that they tried to set the tone of the investigation.
Third parties usually provide things like internal documents, studies, pricing analyses, market research, customer surveys, face to face meetings with the CEO or knowledgeable representative, etc. Expert opinions from reputable economists are also useful.
Sony provided documents, studies, pricing analyses and market research to CADE and the CMA, Jim Ryan met with the European Commission (and the CMA) and they hired a team of economists for the deal. They have even lobbied politicians.
If a competitor decides to oppose a transaction, they'll highlight that the merger is likely to stop the competitor from competing effectively against the merged entity by:
- Foreclosing the competitor from access to a necessary market or input (Call of Duty)
- Foreclosing the competitor from specific and important market opportunities (ABK games in subscription services)
- Subjecting the competitor to higher costs (Gamepass negatively affecting the value of games)
- Subjecting the competitor to exclusionary conduct (raising barriers to entry in cloud gaming)
In addition, although regulators are generally skeptical of competitor complaints, if a regulator decides to oppose a transaction, a complaining competitor can be a valuable ally for the agency (for example in future litigation). This is way the FTC staff was probably getting third party signed declarations in October.
But complaining to the agencies also have risks:
- Third-party materials and testimonies that now are confidential could become public
- It's not cheap :p
- You are wasting time that could be spend on your business
- It's a one-way flow of information (the regulators will not provide a complaining third party with info about the investigation)
- It could affect future acquisitions: regulators could use arguments and information submitted by Sony in the future (market definitions, for example)
So, I understand what Sony is doing and it makes sense from their perspective. But if the trend of the industry is consolidation, they'll have to make more acquisitions too. And being so aggressive now could have unintended consequences in a few years...
