Amazon shares rose 2% during the March 18 trading session. One of the main drivers behind this pop was that the deal between Amazon and MGM Studios - highly anticipated since May of last year - was finally closed.
The deal has been heavily criticized, though, as calls for heavier regulation of big-tech-related mergers and acquisitions have gotten louder in recent years. Here's what investors need to know about Amazon’s MGM deal.
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Amazon-MGM Deal Closed … But Is That The End Of It?
The Amazon-MGM deal announced in May of 2021 has finally come to fruition. The $8.5 billion acquisition had been criticized by regulators in both the EU and the US, who questioned irregularities in the application of antitrust laws and claimed that Amazon was effectively crushing smaller companies in order to stifle competition.
The deal finally materialized after European Union regulators authorized the transaction on the basis that no wrongdoing was taking place. Also of importance, the US’s Federal Trade Commission did not opt to challenge the decision.
But here’s the twist: the FTC’s no-challenge decision was split 2-2. Two democratically-appointed members favored blocking the deal, with the other two voting against it. A majority position was needed for a block to occur.
However, the voting committee is supposed to have five members. That last member will be an appointment of Democratic President Joe Biden. If confirmed by the Senate, he or she could be the deciding vote that pumps the brakes on the Amazon-MGM deal.
And even if a majority vote is not reached, experts in the field say the commissioners could still file a lawsuit against the deal in the future.
Amazon and Big Tech Peers Under Antitrust Scrutiny
It is not news that Amazon and other Big Tech companies have been the targets of antitrust scrutiny as of late. In mid-2021, a group of Democrats and Republicans introduced four proposed bills targeting the power of Big Techs.
Two of these were addressed the issue of companies biasing their own products or services rather than providing a fair platform for product and service competition. In Amazon's case, that may take the form of ranking its own products (e.g., Amazon Basics products) over others’ products on Amazon’s website.
The other two bills specifically address mergers and acquisitions. One of them limits the ability of Big Tech companies to buy companies that compete with other sellers on their platforms, and the other addresses user rights and personal data usage.
Even more recently, Democratic Senator Elizabeth Warren proposed a bill that would give increased power to regulatory agencies to block mergers with over $5 billion of value at stake.
Amazon's biggest deal to date was its $13 billion Whole Foods acquisition in 2017. The $8.5 billion acquisition of MGM is second on the list, followed by acquisitions of shoe company Zappos in 2009 and autonomous vehicle developer Zoox in 2020 - both for $1.2 billion. Amazon also bought the well-known streaming service Twitch in 2014 for $970 million.
All four bills saw forward movement in their respective committees this January. If any of them fully pass the house and senate, they could have significant impacts on Amazon, Apple, and Alphabet among other tech giants.
How May Amazon Stock Be Affected?
With regards to the finalized MGM deal, Amazon will effectively absorb MGM's vast catalog of over 4,000 films. According to Amazon, the value behind the deal is in the repackaging of Amazon's media services catalog with MGM's management, which will create a better experience and offer more options to consumers.
Amazon has not yet revealed the operational details of it will add MGM's portfolio to its own catalog.
This and other future significant acquisitions by Amazon raises the possibility of antitrust issues. These are key risks to take into account when considering a long-term investment in Amazon or other Big Tech names. But for now, since no hard stance is being taken in Washington, I think it is unlikely that Amazon stock will be influenced by antitrust speculation.