What you need to know
- A new report suggests that Microsoft plans to close its Activision Blizzard King acquisition deal despite the FTC's lawsuit against the merger.
- Sources say approval from the Competition and Market Authority is expected later this week, with Microsoft hoping for the European Commission to greenlight the deal in May.
- With both the CMA and EU supporting Microsoft, sources say it would be difficult for the FTC to successfully block the deal.
- The FTC would have to file for an injunction with US Federal courts, but experts say getting that outcome is "far from a sure thing."
- It could also discuss concessions with Microsoft or continue pursuing its case after the deal's deadline in internal courts, though one antitrust source says this could take over a year.
- Update, (April 4, 2023): The UK regulator just blocked Microsoft's Activision deal, which will make it incredibly difficult for the deal to go ahead.
Microsoft is preparing to close its $69 billion acquisition of Activision Blizzard King despite the Federal Trade Commission's (FTC) December lawsuit against the deal, a new report indicates.
According to sources close to Microsoft in the report, the company is optimistic that regulatory bodies in the UK will greenlight the acquisition after significant progress towards approval has been made in recent weeks. Sources say Microsoft's commitments to bring the extremely popular Call of Duty franchise to Sony and Nintendo systems moving forward have persuaded regulators.
A source close to the situation said that an approval from the UK's Competition and Marketing Authority (CMA) is expected later this week, and that Microsoft is hoping for a favorable decision from the European Commission in May. If Microsoft gets the support of both regulators, sources say the company's plan is to rapidly close the deal for $95 a share.
According to a trader's projections, Activision's Tuesday $85.63 share price is expected to raise to around $95 if Microsoft moves to complete the acquisition. If the firm made the decision to drop it, they would likely sink to about $75.
Antitrust experts have reportedly said that approval from both the CMA and European Commission could make it difficult for the FTC's suit against the deal to succeed. “They are going to cram this down the FTC’s throats,” said one source.
If this situation comes to pass, the FTC would be left alone in its challenge of Microsoft's merger, and since its hearing to attempt to block it in its internal courts is scheduled for August 2 — weeks after the deal's deadline — it would have to turn to a US Federal court to file a preliminary injunction. However, a neutral antitrust source says that actually getting that outcome is "far from a sure thing."
“By law the FTC only needs to raise serious, doubtful questions about a merger to get an injunction. But as a practical matter the judge is evaluating the merits of the case," the source said. "If Microsoft makes a deal with the Brits and the European Union it can say that antitrust concerns are resolved, and if you’re a judge that’s not a helpful fact for the FTC.”
The FTC's opposition of the deal is rooted in its belief that Microsoft would have too much power over the gaming market with Activision Blizzard under its wing. “Today we seek to stop Microsoft from gaining control over a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing gaming markets," said Bureau of Competition Director Holly Vedova back when the regulatory authority announced its intent to sue in December. Microsoft and supporters of the merger, however, argue that the company's Xbox brand is in third place behind Sony PlayStation and Nintendo, and that Microsoft doesn't have a foothold in the mobile gaming space.
Reportedly, FTC Chair Lisa Khan hoped to stop the acquisition without ever going to court, believing that it would fall through after its July 18 deadline. "The FTC was trying to kill the deal with process," said the report's antitrust source, referring to delays.
According to the antitrust source, the FTC's best course of action would be to avoid seeking a Federal injunction if both the CMA and European Commission end up supporting the merger. Instead, they believe the regulator should discuss concessions with Microsoft as UK and EU regulators have, or continue to try and build a case against the deal in its internal courts and "get the merger unwound." However, this could potentially take more than a year.
“To my mind, that is the smart play,” said the source.
Windows Central's take
I'm not a legal expert by any means, but it seems like the FTC wouldn't have a realistic chance of successfully blocking Microsoft's Activision Blizzard acquisition if both the CMA and the European Commission gave their approval. It sounds like the CMA is expected to support the deal, and while the situation with the EU is a little murkier, it's telling that sources from this report say Microsoft has made significant progress negotiating with UK and EU regulators.
It doesn't surprise me that Microsoft is getting ready to pull the trigger even with the FTC in its way, as the firm indicated its willingness to fight the lawsuit as soon as it was announced. Regardless, the ultimate success of the deal likely hinges on what the CMA and EU decide in the coming days and weeks. It will be interesting to see what happens next.
Update: The UK regulator just blocked the Xbox-Activision deal, which will essentially prevent Microsoft from closing under any circumstances. Microsoft plans to appeal the deal, but it now seems like the acquisition is on the ropes.
