The Federal Trade Commission (FTC) is investigating Microsoft’s (NASDAQ:MSFT) $650 million deal with Inflection AI, the Wall Street Journal reported. The FTC is probing whether Microsoft willfully structured its transaction with the AI startup, which develops Artificial Intelligence (AI) software and apps, in a way that avoids government antitrust review.
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Companies are required report acquisitions valued at over $119 million to federal antitrust enforcement agencies, which may then investigate the deal’s impact on competition. Regulators can sue to block mergers or other investments if an investigation finds that the deal would substantially hurt competition or lead to a monopoly.
Here’s How MSFT Structured the Inflection AI Deal
Microsoft did not acquire Inflection AI. Instead, it said it would pay $620 million to license Inflection’s AI models. Additionally, Microsoft stated that it would pay $30 million to waive any legal claims related to the mass hiring of Inflection’s employees.
It’s worth noting that Microsoft decided to onboard most of Inflection AI’s employees, reflecting a strategy often used to acquire a company primarily for its talent.
On March 19, Microsoft hired Mustafa Suleyman and Karen Simonyan, the co-founders of Inflection AI. Suleyman is leading MSFT’s new division, Microsoft AI. This business focuses on advancing Copilot, Microsoft’s AI tool, and other consumer AI products. Besides for Suleyman and Simonyan, many employees of the Inflection team opted to join MSFT, including top AI engineers and researchers.
Microsoft’s Risk Analysis
Legal and regulatory challenges are not new for Microsoft. The tech giant has a history of dealing with legal and regulatory issues. As MSFT is subject to several litigations, TipRanks’ Risk Analysis tool shows its legal and regulatory risk exposure is much higher than the industry average.
It’s worth noting that MSFT’s legal and regulatory risks account for 29.6% of its total risks, well above the industry average of 20.3%. In comparison, GOOGL’s legal and regulatory risks account for 20.7% of its total risks, much lower than MSFT.
What is the Price Target for Microsoft?
Microsoft stock has increased by about 28% in one year. Analysts’ average price target for MSFT stock is $491.90, implying 16.01% upside potential from current levels.
Wall Street analysts are also bullish about MSFT’s prospects. MSFT stock has 32 Buys and one Hold recommendation, translating into a Strong Buy consensus rating.
