The fate of the Microsoft Activision takeover deal became clearer after a federal judge failed to block it on Tuesday, July 11, 2023. The decision of the judge was a huge blow to the U.S. regulators who had asked the court to grant a temporary injunction while the legal proceedings unfold.
Following the decision of the U.S. District Court for the Northern District of California, the coast is now clear for the conclusion of the Microsoft Activision takeover. When consummated, Microsoft will become the third largest video game publisher in the world and have total control over popular franchises like Diablo, World of Warcraft, and Call of Duty.
A section of the 53-page partially redacted opinion of District Judge Jacqueline Scott Corley read, “[The US government] has not shown it is likely to succeed on its assertion the combined firm will probably pull Call of Duty from Sony PlayStation, or that its ownership of Activision content will substantially lessen competition in the video game library subscription and cloud gaming markets”.
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With this development, it is only a matter of days before the Microsoft Activision takeover will be finalized. This is because the contractual deadline of the deal is July 18. However, both parties can mutually seek to extend the deadline for the $69 billion deal.
Why the U.S. Federal Trade Commission is against the Microsoft Activision takeover deal
The U.S. FTC argued that a temporary injunction to block the deal was paramount. According to the FTC, allowing the Microsoft Activision takeover to go on while litigation was ongoing would have inflicted harm on gamers and other consumers.
The FTC first challenged the Microsoft Activision takeover in its in-house administrative court before heading to the federal court. The FTC believes that if the Microsoft Activision takeover deal was allowed to go on, it would give Microsoft control over massively popular franchises.
Consequently, the FTC fears that Microsoft may decide to withdraw these titles from rival platforms like PlayStation or from the burgeoning cloud-based streaming platforms. Therefore, they asked Corley for an injunction to stop the deal from closing until the FTC’s in-house court reaches a conclusion.
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During the 5-day hearing in June in federal court, Microsoft executives including CEO Satya Nadella unequivocally said that rival platforms will not be blocked from accessing Call of Duty, even after the closure of the deal.
Beyond vocal rhetoric, Microsoft also signed several multi-year licensing agreements with Nintendo and NVIDIA that guarantees the availability of content for their platforms after the Microsoft Activision takeover.
Why the court ruled in favor of the Microsoft Activision takeover
In its court filings, Microsoft agreed that if the FTC wins at this stage, it “will effectively block the transaction” completely, considering the timeframe and cost associated with the FTC’s proprietary merger challenge.
Corley’s ruling on Tuesday gave Microsoft the benefit of the doubt since the FTC failed to prove that Microsoft Activision takeover would make Call of Duty exclusive to Microsoft platforms like Xbox. Corley highlighted 8 factors that boosted Microsoft’s defense including the fact that Microsoft will make more money by making Call of Duty available to multiple platforms.
“The FTC has not identified a single document which contradicts Microsoft’s publicly-stated commitment to make Call of Duty available on PlayStation,” read the verdict.
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These were strong words considering the fact that the FTC had close to a million company documents and 30 depositions. Corley said the licensing agreements signed by Microsoft is a win for the public scrutiny of the deal which further eliminates the need for judicial intervention.
The FTC may be forced to abandon its in-house merger challenge and opposition to the Microsoft Activision takeover deal. If that happens, it would not be the first time that the FTC has dropped its in-house challenge. In February, the agency had to drop its in-house case against the acquisition of Within Unlimited (a virtual reality startup) by Meta.
The FTC may escalate the case and approach the U.S. Court of Appeals for the Ninth Circuit for a stay of Corley’s order pending an appeal.
Microsoft and Activision react to Corley’s ruling
Shortly after the court verdict, Brad Smith, the vice chairman and president at Microsoft released a statement saying, “We’re grateful to the Court in San Francisco for this quick and thorough decision and hope other jurisdictions will continue working towards a timely resolution. As we’ve demonstrated consistently throughout this process, we are committed to working creatively and collaboratively to address regulatory concerns.”
Activision Blizzard CEO Bobby Kotick also released a statement highlighting how the Microsoft Activision takeover deal “will enable competition rather than allow entrenched market leaders to continue to dominate our rapidly growing industry”.
However, the FTC did not hide their disappointment and insisted that the Microsoft Activision takeover deal was a threat to “open competition in cloud gaming, subscription services, and console”.
“In the coming days we’ll be announcing our next step to continue our fight to preserve competition and protect consumers,” said the spokesperson for the FTC, Douglas Farrar, in a statement.
After the decision of the U.S. court, Microsoft also announced that it has reached an agreement with the UK’s Competition and Markets Authority (CMA)—which previously blocked the deal in April—to suspend the litigation against the merger while both sides work towards solving the competition concerns in the UK.
“We are considering how the transaction might be modified in order to address those concerns in a way that is acceptable to the [CMA],” Smith said in a statement. “Microsoft and Activision have reached an agreement with the CMA that a stay of litigation in the UK is in the public’s interest and the parties have jointly made a submission… to this effect.”
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