Microsoft wins legal battle against FTC, as UK regulator remains sole hurdle to Activision Blizzard acquisition

Microsoft is now one step closer to acquiring Activision Blizzard, as a Calfironia judge has denied a preliminary injunction request by the US Federal Trade Commission. Here is what’s next for the companies trying to close the largest M&A deal in video game history.

What happened?

On July 11, the US District Court for the Northern District of California ruled against the FTC’s preliminary injunction request. This comes after a five-day hearing, which involved testimonies from Microsoft CEO Satya Nadella, Xbox head Phil Spencer, Activision Blizzard CEO Bobby Kotick, and SIE boss Jim Ryan.

Judge Jacqueline Scott Corley noted that Microsoft’s acquisition of Activision Blizzard deserves scrutiny as the largest in the tech industry. However, the court found that the FTC failed to show a likehood success on its claim that Microsoft would have an incentive to foreclose Call of Duty from PlayStation following the deal.

“That scrutiny has paid off: Microsoft has committed in writing, in public, and in court to keep Call of Duty on PlayStation for 10 years on parity with Xbox. It made an agreement with Nintendo to bring Call of Duty to Switch. And it entered several agreements to for the first time bring Activision’s content to several cloud gaming services.”

The court also didn’t find any substantial evidence that the $68.7 billion merger could substantially lessen competition in the games industry.

How did Microsoft and Activision react to the ruling?

• Microsoft president Brad Smith stated that the company is grateful to the court “for this quick and thorough decision and hope other jurisdictions will continue working towards a timely resolution.” He added that Microsoft is committed to further collaborating with regulators to address their concerns.

Our statement on today’s decision: pic.twitter.com/jRDD8PhBeT

— Brad Smith (@BradSmi) July 11, 2023

• Activision Blizzard CEO Bobby Kotick noted that the merger will benefit consumers and workers: “It will enable competition rather than allow entrenched market leaders to continue to dominate our rapidly growing industry.”
• Microsoft Gaming CEO Phil Spencer said in a statement that “the FTC’s claims about console switching, multi-game subscription services, and cloud don’t reflect the realities of the gaming market.”

3/We know that players around the world have been watching this case closely and I’m proud of our efforts to expand player access and choice throughout this journey. END

— Phil Spencer (@XboxP3) July 11, 2023

• According to FTC spokesperson Douglas Farrar, the Commission is “disappointed in this outcome”, adding that it will be announcing its next step in the coming days.

Does this mean Microsoft is now allowed to close the Activision Blizzard deal?

The short answer is no… and yes?

• First, the FTC will have a chance to appeal the ruling before July 15. But as reported by The Verge, the Commisson didn’t appeal a similar decision permitting Meta to acquire Within, so it may give up on its fight against Microsoft as well.
• Second, Microsoft has yet to clear the Activision Blizzard deal in the UK, where the Competition and Markets Authority (CMA) blocked the merger over cloud gaming market concerns. The corporation appealed the decision, but both parties have now agreed to pause their fight for further negotiations.
• “While we ultimately disagree with the CMA’s concerns, 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 stated.

Our statement on the mutual request with the CMA for a pause of our appeal in the UK: pic.twitter.com/8Aky2IJjxS

— Brad Smith (@BradSmi) July 11, 2023

• Third, Microsoft could technically close the deal without the UK’s permission to meet the July 18 deadline. However, this is the most unpredictable and dangerous scenario legal-wise, so Microsoft and Activision Blizzard are likely to extend their initial agreement and find remedies that satisfy the CMA.
• The appeal hearing in the Microsoft v. CMA case is set for July 28, which is 10 days after the deadline. If the parties don’t close the deal or extend the agreement before July 18, Microsoft will have to pay Activision a $3 billion termination fee.
• Overall, today’s win against the FTC is a major success for Microsoft, as the Activision Blizzard deal has already been approved by the European Commission. So now it all depends on the outcome of the company’s legal turmoil with the CMA.