The US is suing Microsoft to block the takeover

The Federal Trade Commission (FTC) has announced that it will try to prevent Microsoft from acquiring Activision Blizzard.

Source: Activision

Microsoft’s proposed $69 billion purchase of Activision Blizzard faces a major new hurdle. The Federal Trade Commission (FTC) has initiated a federal antitrust case to block the deal.

Since Microsoft’s operation was announced, it has been the subject of much discussion, with some players, such as Sony, trying to block the acquisition. One of the questions that has continued to come up since the announcement concerns the exclusivity of Activision Blizzard’s games. Microsoft tried to appease Sony by promising it call of duty will remain available on PlayStation for 10 years, and recently indicated plans to expand the franchise to Nintendo Switch and Steam.

Why is the FTC suing?

The Federal Trade Commission (FTC) is an independent agency of the US government whose primary mission is to enforce consumer laws and control anti-competitive business practices such as unfair monopolies.

In a press release, the US agency says that Xbox ” would take control of the top video game franchises” and therefore ” would harm competition in the high-performance game console and subscription services industry by denying or impairing competitors’ access to its popular content “.

What are the FTC’s arguments?

The FTC also notes that Activision Blizzard is “ one of the very few video game developers in the world that creates and publishes high quality video games for multiple devices “. The publisher controls a large number of titles, e.g call of duty, Warcraft, Overwatch and Diablo.

First of all, the US Commission believes that Microsoft did not fulfill its obligations to the EU after the acquisition of Zenimax by making Starfield and Redfall games future exclusives of the Xbox ecosystem. It would therefore be impossible to trust Microsoft for the purchase of Activision Blizzard and the franchise Call of Duty.

Microsoft has already shown that it can and wants to deprive rivals of content. Today, we want to prevent Microsoft from taking control of a leading independent game studio and using it to harm competition in several dynamic and growing game markets.

Even by offering Activision games on rival consoles, the FTC believes the company would have free rein to manipulate prices or degrade the gaming experience on other platforms.

It should be noted that the FTC speaks in its console release ” High performance “. It is very likely that she thus wants to exclude the Nintendo Switch from the equation in order to observe only the market consisting of the PS5 and the Xbox series.

Should Microsoft abandon its takeover?

Microsoft may choose to abandon its takeover plan, in which case the company will have to pay $2 billion to $3 billion in compensation to Activision Blizzard.

However, the company has chosen to fight the FTC’s decision and wants to take the case to court.

What is Microsoft’s response?

Through the voice of Brad Smith, responsible for legal affairs at Microsoft, the Redmond company has indicated its intention to fight this decision: ” Although we believe in giving peace a chance, we have full confidence in our case and welcome the opportunity to present it in court.. »

What is Activision Blizzard’s response?

Activision Blizzard boss Bobby Kotick, notably accused of threatening a group employee with death, also shared a statement about the FTC.

It sounds alarming, so I want to build my confidence to get this deal done. The claim that this agreement is anti-competitive does not fit the facts and we believe we will win this challenge.

We believe our arguments will prevail despite a regulatory environment driven by ideology and misconceptions about the technology industry.

Lulu Cheng Meservey, Executive Vice President and Chief Communications Officer at Activision Blizzard said they were ” (…) eager to prove our case in court and finalize our deal with Microsoft.»

Has the FTC ever blocked a takeover of this magnitude?

Almost a year to the day before the FTC filed a lawsuit against Microsoft’s acquisition of Activision, the same commission sued Nvidia over the acquisition of ARM.

On February 8, 2022, 3 months after the FTC complaint, Nvidia announced that the plan to buy ARM was abandoned.

Be careful though, all cases are different and the two proposed takeovers raised very different issues for completely separate markets. However, this precedent teaches us that it is not always necessary to wait for the result of the experiment to finish a project. It also indicates how a brand can wait several months before making the decision to abandon the takeover.

The FTC is also in a lawsuit with Meta over the takeover of Within. The trial opens on December 8th following the announcement of a lawsuit by the FTC on July 27th, just over 4 months prior.

What might the consequences of the lawsuit be?

The first possible consequence is, of course, an outright victory for the FTC, which will completely block the takeover if Microsoft does not decide to appeal. Conversely, the FTC can be defeated and Microsoft can win the acquisition without restrictions.

Other, perhaps more likely, options would impose restrictions on Microsoft regarding the takeover. For example, the company may be unable to launch Activision Blizzard games in its Game Pass service or be required to offer them at reasonable prices to competing services.

More seriously for the company, justice could force it to divest Activision Blizzard. In this case, Microsoft would buy Blizzard and King, but could be forced to surrender its independence to Activision and the license call of duty .

What are the next important dates?

If Microsoft and the FTC continue until the trial, it should open in several months. Meanwhile, the Redmond company still needs to convince authorities in other countries, notably the EU and the UK. With public opposition from the US FTC, international authorities could more easily decide to fight Microsoft on this issue.

The European Commission must make its decision 11 April 2023 latest. In the UK, the first conclusions of the CMA should be published in early January, with a final decision expected no later than this. 1 March 2023.

According to media outlet Axios, the FTC filed its case in its own administrative court, not in federal court. In addition, the committee would not seek an interim injunction to prevent the completion of the takeover“. This appears to mean that Microsoft and Activision could complete the merger before the end of the lawsuit if they get the green light from other countries.

As a reminder, Microsoft has given itself until the end of June to integrate Activision-Blizzard. If the company misses that deadline, it will have to return to negotiate with Activision-Blizzard, likely with a purchase price hiked up as compensation.

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