Microsoft’s acquisition of video game developer Activision Blizzard has encountered regulatory obstacles, as the US Federal Trade Commission (FTC) seeks to prohibit the $69 billion transaction. While the European Union has approved the acquisition, the Competition and Markets Authority (CMA) in the United Kingdom has blocked it, setting the stage for a legal battle between Microsoft and regulatory authorities.
The US Federal Trade Commission (FTC) is preparing legal action to prevent Microsoft from acquiring Activision Blizzard for $69 billion. Early in December, the FTC, which is responsible for enforcing antitrust law, requested an administrative magistrate to block the transaction.
The U.S. antitrust regulator and the Competition and Markets Authority of the United Kingdom have different concerns about the transaction.
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According to the FTC, Microsoft may be able to degrade Activision’s game quality or player experience on rival consoles such as Nintendo consoles and Sony Group Corp’s PlayStation, manipulate pricing, or alter the terms or timing of access to Activision content.
What is the Activision deal?
Microsoft announced the Activision bid in January of last year in order to increase its firepower in the booming videogames market, compete with market leaders Tencent (0700.HK) and Sony (6758.T), and lay the groundwork for its investment in the metaverse and more lifelike virtual reality (VR) or augmented reality (AR)-enhanced digital spaces.
Microsoft wishes to acquire Activision for $69bn (£56bn), which is unthinkable even for Microsoft, one of the wealthiest companies in the world. If the purchase is permitted, it will be the largest acquisition of a gaming corporation in history.
Microsoft claims that acquiring Activision would allow it to add more major titles to Game Pass, its Netflix-style subscription service, and produce more games for mobile phones, where profits are substantial. To quell antitrust concerns Microsoft, the owner of Xbox, stated in February that it is willing to offer licensing agreements to competitors but will not sell Activision’s lucrative “Call of Duty” franchise. However, regulators around the world have diverse reactions to the transaction.
Sony, the market leader, desires that the transaction be blocked. A group of ten American gamers have lodged a private antitrust lawsuit against the transaction. But Microsoft defeated the gamers’ attempt to block the transaction in May.
The European Games Development Federation, which represents over 2,500 game studios across 22 European nations, and the UNI Global Union support the acquisition. Nvidia (NVDA.O) stated its support for the transaction.
U.S. FTC sues to stop the deal with an injunction
Microsoft and Activision Blizzard’s $69 billion deal has encountered regulatory obstacles in both the United Kingdom and the United States. The UK antitrust regulators blocked the transaction in April, while the US Federal Trade Commission (FTC) attempted to do so in December. The FTC has now requested a provisional restraining order to halt the closing of the transaction pending the completion of its investigation.
Antitrust authorities in the United States and the United Kingdom have different priorities. Even though the European Union approved Microsoft’s proposal in May, British competition authorities had blocked the acquisition already in April. Now the FTC is pursuing a court order in the Northern District of California to pause the transaction. It states that the agreement would provide Microsoft with the “ability and increased incentive to withhold or degrade Activision’s content in ways that substantially lessen competition”.
In addition to a lawsuit filed in December to halt the transaction, the FTC filed a request for a restraining order and injunction on June 12 to prevent the transaction from occurring prior to the July 18 deadline. The FTC’s objective is to halt all merger and acquisition activity and adjudicate the legality of the merger in an administrative proceeding.
Microsoft’s president, Brad Smith, stated that they embrace the opportunity to present their case in federal court, as they believe that speeding up the legal process will ultimately result in increased market choice and competition.
“We welcome the opportunity to present our case in federal court,” he said.
Microsoft shares closed Monday up 1.5%, while Activision shares declined 0.8%.
EU set to approve the deal, but UK regulators objects
Confirming earlier reports, the European Commission is set to approve Microsoft’s acquisition of Activision Blizzard. The Commission stated that Microsoft’s commitments in support of the deal constituted a significant improvement for cloud gaming over the current state of affairs. Microsoft’s acquisition of Activision Blizzard was blocked by the UK Competition and Markets Authority (CMA). The CMA determined that the transaction would hinder competition in the rapidly expanding cloud gaming market. Microsoft and Activision Blizzard intend to appeal this decision.
This decision places the EU against the British regulator and the EU believes the concerns have been addressed by Microsoft’s agreements to make Activision Blizzard’s games available on other cloud gaming providers.
Microsoft President Brad Smith has expressed the company’s displeasure with the CMA’s decision to block the acquisition. Smith stated that Microsoft’s confidence in conducting business in the United Kingdom has been severely eroded and alluded to the possibility of conducting more business in Europe. He referred to the decision as “bad for Britain” and the “darkest day” in Microsoft’s forty-year history in the country.
Countries that approves the acquisition
Here’s a list of all the countries that have approved Microsoft’s acquisition of Activision Blizzard so far:
- South Africa
- Japan
- Chile
- Brazil
- Saudi Arabia
- Serbia
Will Microsoft succeed in the acquisition?
Antitrust experts assert that the FTC will have a difficult time persuading a judge to block the transaction because Microsoft has offered voluntary concessions to allay concerns that it will dominate the gaming market. Behavior remedies like licensing deals are rarely enough for the CMA. In 2021, it showed its strength by telling Facebook owner Meta to sell animated-images site Giphy after the deal was done.
In addition, both Nintendo and Nvidia have signed 10-year licensing agreements to bring Call of Duty to their respective gaming platforms if the Activision deal is approved. Additionally, Spain’s Nware signed a 10-year agreement to add Xbox and Activision Blizzard games to its cloud-gaming platform.
Similar proposals have been presented to Steam and Sony, but Sony has not yet accepted the offer.
Sources indicate that Microsoft’s willingness to offer licensing agreements to its competitors will likely ease European Commission concerns regarding the tech giant’s acquisition of Activision Blizzard. It is unlikely that the EU will require the sale of assets in order to sanction the transaction. This development places pressure on other regulators to justify their opposition and on Sony to accept Microsoft’s offer of a 10-year Call of Duty licensing agreement for PlayStation. The EU has extended its decision deadline until April 25.
In addition, a U.S. judge assigned to the Federal Trade Commission (FTC) case against the transaction ruled that Microsoft will be permitted to view some of the internal Sony documents it requested, including communications with regulators and details of exclusivity arrangements with publishers. Microsoft intends to refute Sony’s argument by highlighting PlayStation’s greater reliance on exclusivity agreements than Xbox.
Microsoft’s Smith stated that the company would oppose the FTC’s request to halt the transaction. Additionally, it appealed the CMA’s decision to prohibit the merger.
In conclusion, Microsoft’s acquisition of Activision Blizzard faces regulatory obstacles, as the US FTC seeks to halt the transaction while the EU has approved it. The fate of the $69 billion acquisition will be determined by the outcome of these legal battles.
