Agreement with Microsoft Activision: US FTC sues to block $69 billion takeover deal on competition grounds

The Biden administration on Thursday decided to block Microsoft’s bid of $69 billion (roughly Rs. 5,66,800 crore) to buy Call of Duty maker Activision Blizzard, throwing a stumbling block ahead of the giant’s plans of technology to rapidly expand its portfolio of popular games and catch up with bigger rivals.

Microsoft, owner of the Xbox console and gaming network platform, said in January 2022 that it would buy Activision for $68.7 billion (about Rs 5,64,474 crore) as part of the biggest history game industry contract.

Without Activision and its variety of games on mobiles, consoles and PCs, Microsoft might struggle to attract users to its budding subscription service to access games. Attracting subscribers has become a priority for large tech companies as traditional sources of growth such as ad sales become less reliable.

The US software company had said it wanted the deal to help it compete with gaming leaders Tencent and PlayStation owner Sony, which criticized the deal.

But, in its complaint, the US Federal Trade Commission, which enforces antitrust law, said Microsoft had a habit of hoarding valuable gaming content.

“Microsoft has already shown that it can and will withhold content from its gaming rivals,” said Holly Vedova, director of the FTC’s Competition Bureau.

. “Today, we seek to prevent Microsoft from taking control of a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing game markets.”

The agency has scheduled a hearing before an administrative law judge for August 2023.

Microsoft President Brad Smith said the company will fight the FTC. “While we believed in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court,” he said.

The Biden administration has taken a more aggressive approach to antitrust enforcement. The US Department of Justice recently halted a $2.2 billion (about Rs 18,074 crore) merger between Penguin Random House, the world’s largest book publisher, and its smaller US rival Simon & Schuster.

“This is further evidence of the administration and antitrust war against big tech,” said Andre Barlow of the law firm Doyle, Barlow and Mazard. The Trump and Biden administrations have prioritized big tech in antitrust enforcement.

Shares of Activision closed down 1.5% at $74.76 (about Rs. 6,100), while Microsoft slipped from previous highs but closed about 1% higher at $247.40 ( around Rs 20,330).

Activision, which has long dreamed of being a Disney-like entertainment conglomerate, also realized it needed more technological savvy and might be forced to shrink its games roster to shift resources to emerging fields such as AI.

Competition issues

The FTC said its concern was that popular Activision games, including World of Warcraft and Diablo, would not continue to be offered on a range of consoles, PCs and mobile devices.

While Microsoft has suggested concessions to address competition concerns, the rapid pace of change in the tech and gaming industries could render those terms unnecessary over time.

To woo regulators, shortly after the deal was announced, Microsoft unveiled a new set of principles for its app store, including open access to developers who meet privacy and security standards.

This month, in another move of direct criticism, Microsoft concluded a 10-year commitment to bring Call of Duty, the popular first-person shooter series, to Nintendo platforms. Microsoft made the same offer to Sony.

Antitrust challenges stumbled when the companies offered a “solution” to antitrust damages caused by a deal, said William Kovacic, a former FTC chairman who now teaches law.

“I think we can predict with a high degree of certainty that he (the judge) will listen to these arguments (from Microsoft) and may be supportive of them,” Kovacic said.

Chair Lina Khan and the two Democrats on the commission voted to approve the complaint, while Commissioner Christine Wilson, a Republican, voted no.

Activision Blizzard CEO Bobby Kotick told employees on Thursday that he was confident the deal would continue.

“The allegation that this agreement is anti-competitive does not fit the facts, and we believe we will win this challenge,” he told employees, saying he believed the companies’ arguments would win “despite an environment regulation driven by ideology and misconceptions about the tech industry.”

The deal also faces regulatory headwinds in Europe.

In late November, Microsoft was expected to offer solutions to EU antitrust regulators in the coming weeks to avoid formal objections to the deal, people familiar with the matter said. The deadline for the European Commission to issue a formal list of competition concerns, known as a Statement of Objection, is January.

© Thomson Reuters 2022

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