FTC move to block Microsoft deal for Activision Blizzard despite appealing attacks

According to the Commission’s complaint, the deal is illegal and gives Microsoft control over how consumers other than users of its own Xbox consoles and subscription services access Activision’s games. Microsoft has repeatedly stated that it does not engage in such conduct. The FTC complaint accuses Microsoft of breaking similar pledges it made to European regulators in the past, a charge Microsoft disputes.

Earlier this week, amid a potential lawsuit, Microsoft touted the deal’s benefits for gamers via an op-ed piece in The Wall Street Journal, giving competitors access to one of Activision’s most popular games. announced the deal. The FTC filed a lawsuit on Thursday.

In its complaint against Microsoft, the FTC said, “If the proposed acquisition is completed, it will tend to significantly reduce competition or create a monopoly.”

Executives at the Redmond, Wash., company said it would take a long time to get all the necessary approvals from regulatory agencies around the world, a process that took nearly 18 months. The deal may not meet Microsoft’s mid-2023 deadline, and some analysts say Microsoft may want to call off the acquisition.

“A deal would be a distraction to management and costly regulatory costs,” said John Freeman, vice president of investment research firm CFRA Research, in a note to investors. “We should give up on acquisitions on the hint that we might win in the form of concessions.” .

At stake are Microsoft’s big ambitions for its video game business, which made $16 billion in revenue last year. This sum is less than his 10% of Microsoft’s total revenue. Business is a key part of Microsoft’s plans to diversify to attract more non-corporate customers.

The FTC’s move comes after the company bore the brunt of recent anti-tech backlash.

The lawsuit represents a “some meaningful setback” for Microsoft, according to Stifel Nicholas analyst Brad Ribach. “They have worked hard to stay on the right side of government.”

Microsoft’s Washington resident (Vice Chairman and President Brad Smith) has built relationships in the capital for decades. He has helped cultivate the software giant’s image as one of his leaders in friendly technology, and stands in an enviable position in an increasingly hostile regulatory environment against the tech giants.

One of Microsoft’s longest-serving leaders, Mr. Smith joined Microsoft in 1993 and served as general counsel throughout the 1990s through tough antitrust disputes with regulators around the world.

After the lawsuit was filed, Smith said: “While we believed in giving peace a chance, we have full confidence in our case and welcome the opportunity to take it to court.”

In the complaint, the FTC accused Microsoft of stifling competition with its competitors by acquiring ZeniMax Media Inc., the parent company of Doom developer Bethesda Softworks, in 2021. Microsoft said the FTC’s ZeniMax claims were misunderstood.

Microsoft officials have expressed confidence in completing a deal with Activision valued at $68.7 billion after adjusting Activision’s net cash. Lawmakers and industry representatives say it will be difficult for America’s biggest tech companies, including Apple. Ltd,

Amazon.co.jp Ltd,

Google parent alphabet Ltd.

Or Facebook owner Meta Platforms Inc. — gaining approval for a large acquisition in the current political environment.

In recent years, as government scrutiny and competition among big tech companies have intensified, Microsoft has tried to appease regulators.

For example, in May, Microsoft announced a set of principles it adheres to when doing business with European cloud service providers. This is intended to allay concerns that Microsoft’s cloud business is hurting European cloud companies. The principles included a pledge to work with European cloud providers and support the success of software vendors running on Microsoft’s cloud.

Amid concerns that the deal could undermine attempts to unionize at Activision and elsewhere in the gaming industry, Microsoft said in June it was open to working with unions who wanted to do so. rice field.

As a PlayStation maker Sony Group Ltd.

There are concerns that the acquisition could force competitors out of Activision’s popular Call of Duty franchise.

Microsoft released its claims to the public this week. “Blocking our acquisition would make the gaming industry less competitive and gamers even worse,” Smith wrote in his WSJ op-ed Monday. “Think of how much better it is to stream a movie from your couch than drive to Blockbuster. We want to bring that same kind of innovation to the video game industry.”

It’s too early to tell whether the FTC can succeed in blocking the takeover. The agency would have to appear before a federal judge, a process that could take months, according to Columbia Law School professor Eric Talley.

Regulators may have a hard time winning this case because courts have not historically viewed transactions between companies that specialize in different stages of the production process in the same industry, so-called vertical mergers, as a competitive hazard. , he said.

“The committee may need to convince judges to change the law somewhat,” he said. “This makes it a tough case for the FTC to win, but perhaps he knew the FTC would know this was going to happen.”

Email Sarah E. Needleman at Sarah.Needleman@wsj.com.