Microsoft-Inflection deal is a merger, but that’s OK, says UK

The UK’s antitrust regulator has concluded its investigation into Microsoft’s hiring of the majority of staff from Inflection and its licensing of the company’s technology.

The Competition and Markets Authority (CMA) published a summary of its decision Wednesday, finding that while Microsoft’s actions constituted a “relevant merger situation” and thus fall under its purview, they did not result in what it called “a realistic prospect of a substantial lessening of competition (SLC).”

In other words, the deal — which didn’t involve Microsoft buying the company — is a merger, but the regulator is OK with that.

This means that the CMA will not pursue a full-scale investigation into the deal, which poured an estimated US$650 million into Inflection’s coffers.

Not this time, anyway: Similar deals may, however, come under scrutiny for their effect on competition.

This was one of many regulatory looks at investments in AI startups by big tech companies hoping to escape regulatory scrutiny with what some have dubbed a quasi-merger: strategic investments and/or hiring key team members that gain the investor influence or control over the startup without actually buying the company.

At the same time the UK investigation into Microsoft was announced, the US Federal Trade Commission (FTC) began a look into Amazon’s hiring of key executives, including the CEO, from AI startup Adept, and its plan to license some of Adept’s technology. And in early August, the CMA announced that it is launching an inquiry into Amazon’s relationship with Anthropic to determine whether it, too, warrants a full investigation. A CMA inquiry into Google’s relationship with Anthropic is also underway.

When is a merger not a merger?

In its summary of the Microsoft-Inflection decision, the CMA said that that it assessed the criteria for a relevant merger situation under the Enterprise Act 2022, noting, “There is no particular combination of assets that constitutes an enterprise. As set out in the CMA’s guidance, it may include a group of employees and their know-how where this enables a particular business activity to be continued.”

Furthermore, it said, “In addition to hiring the core former Inflection team, Microsoft also acquired additional assets, including access to Inflection IP. The combination of acquiring the core team together with these assets was key to the value of the Transaction, as it enabled the former Inflection team to continue the pre-Transaction Inflection roadmap for consumer-facing AI product development within Microsoft.

“On this basis, the CMA believes that Microsoft has substantively acquired Inflection’s pre-Transaction FM [Foundation model] and chatbot development capabilities. Accordingly, the CMA has found that at least part of the activities of pre-Transaction Inflection has been brought under the control of Microsoft and, as a result, that two enterprises have ceased to be distinct such that the Transaction falls within the CMA’s merger control jurisdiction for review.”

The CMA said that the full text of its decision will be published “shortly” on the web page for the case.