Microsoft gets off with warning in antitrust investigation into quasi-merger with Inflection AI

The UK Competition and Markets Authority (CMA) has completed its preliminary investigation into Microsoft’s hiring of Inflection AI, finding no threat to competition in the market. However, the regulator warned that such transactions in the future may be subject to more thorough analysis.

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The CMA completed an investigation into the deal in which Microsoft hired almost the entire Inflection AI team in March this year, including its two founders, including Google DeepMind co-founder Mustafa Suleyman, but found no violations of antitrust laws. As TechCrunch explains, this means that a full investigation will not be conducted.

However, despite the positive outcome for Microsoft, the CMA stressed that the deal still falls within the definition of a “relevant merger situation” and similar deals, where large tech companies hire key teams from smaller start-ups, may come under greater scrutiny in the future from a competition, even if we are not talking about a full takeover.

The regulator’s decision is based on an analysis of the situation when key specialists with unique knowledge in the field of AI move to another company, transferring their experience and developments to it. “The employee transfer, combined with other tactical agreements, means the two companies are no longer separate,” Joel Bamford, CMA chief executive, wrote on LinkedIn. In this case, although Inflection AI continues to exist as an independent organization, its key developers work at Microsoft, which can be regarded as a merger. However, it is important to note that the CMA does not see the deal as a competitive threat, as Inflection AI was not a strong enough competitor to Microsoft in the field of consumer chatbots such as Copilot and ChatGPT.

The Microsoft-Inflection AI deal is a prime example of a new trend in AI mergers and acquisitions that some experts are calling a “quasi-merger.” This approach allows large companies to gain access to the technology and talent they need while avoiding a formal takeover that could attract greater regulatory scrutiny. Quasi-mergers can take many forms, from strategic investments to key hires, as in the case of Microsoft and Inflection AI.

As a result, Microsoft avoided regulatory intervention this time, but the CMA has made it clear that it is closely monitoring transactions involving large technology companies and small AI start-ups, and is prepared to treat such transactions as “merger relevant situations”, even if it is not about complete absorption. That is, quasi-mergers will now become the object of increased regulatory attention in the future.

Interestingly, several investigations related to similar transactions in the field of AI were also previously launched. We are talking about Microsoft’s investment in the French startup Mistral AI and Amazon’s $4 billion investment in Anthropic. The CMA also took an interest in the connections between Google and Anthropic, in which the Internet giant invested $300 million last year and another $2 billion this year.