A High-Stakes Showdown: Microsoft and Activision vs. The FTC in a Record-Setting Tech Acquisition Trial
June 30, 2023
The courtroom battle that could seal the fate of the largest technology merger in American history has reached a dramatic climax. Key testimonies were provided by Microsoft’s CEO, Satya Nadella, and Activision’s Bobby Kotick, as they squared up against the legal might of the Federal Trade Commission. The outcome of this case stands to greatly influence the Biden administration’s stance on antitrust enforcement and its ongoing scrutiny of leading U.S. tech conglomerates, under the vigorous leadership of FTC Chairwoman Lina Khan.
Monopolistic Concerns in the Gaming Industry
The FTC’s apprehensions are straightforward. They contend that the $69 billion merger between Microsoft – the giant behind Xbox – and Activision, a prominent game developer, could stifle competition. With Activision’s Call of Duty and World of Warcraft among the most sought-after gaming franchises, the merger could catapult Microsoft into being the third-largest gaming entity globally. This development might potentially restrict competitors’ access to titles or inflate prices for other gaming platforms. The FTC also raises objections about a perceived advantage for Microsoft in the burgeoning fields of game subscriptions and cloud gaming.
The Ticking Clock and Potential Consequences
The timeline of the trial is as crucial as its substance. The deal has a set expiry date of July 18, beyond which Microsoft would either have to pay billions in dissolution fees or renegotiate the terms. Meanwhile, the FTC is pushing for a preliminary injunction to prolong the process until August, when an internal court judgment is expected that could potentially extend the case for years. All eyes are now on U.S. District Judge Jacqueline Scott Corley in San Francisco, who will deliver a verdict over the coming days that could either cement or shatter the deal.
Global Implications and Market Responses
While the FTC trial holds paramount importance, M&A investors are also closely monitoring developments in the U.K., where the nation’s antitrust regulator is scheduled to hear an appeal on July 28. The proposed $69 billion deal has already received the green light in the EU, China, and several other markets. Microsoft has gone to extensive lengths to mitigate antitrust concerns, striking deals to bring Call of Duty to Nintendo for the next decade and extend access to Sony. Since the deal’s announcement on January 18, 2022, Microsoft and Activision Blizzard’s stocks have surged by 45% and 30%, respectively.
In a concluding remark, Chris DeMuth Jr., Investing Group Leader of Sifting the World, noted, “At the end of the hearings, the judge reminded an FTC lawyer that her concern isn’t potential harm to Sony, but rather harm to consumers. The FTC’s case could have been stronger if this perspective was understood from the outset. The FTC hardly mentioned consumers or demonstrated potential harm to them, instead appearing to act more as Sony lobbyists than American law enforcers. This peculiar spectacle is unlikely to be the first vertical merger blocked this century.”