Microsoft is moving closer to its $75bn acquisition of Activision Blizzard, after a US Federal judge rejected the Federal Trade Commission’s attempt to stop the deal. The UK’s Competition Watchdog also signaled that it would be open to discussing the merger which it previously rejected.
Activision shares, which include Call of Duty and other video games, rose more than 11 percent to $92 at the New York lunchtime market. This is the closest they have been to the $95 per share offer since Microsoft made its bid announcement in January 2022.
In her ruling, Judge Jacqueline Scott Corley stated that the FTC had not demonstrated it was likely to be successful in its assertions that the combined company would probably pull Call of Duty away from Sony PlayStation or its ownership of Activision will significantly lessen the competition in the video games library subscription market and cloud gaming market.
The FTC can appeal the decision until Friday. The FTC had requested a preliminary order blocking the deal until the result of another challenge that it has brought in its own court. Proceedings are scheduled to begin on August 2.
The ruling is a major blow to the administration of Joe Biden, who has been appointing progressive officials like FTC Chair Lina Khan in order to crackdown on anti-competitive behavior across the US economy.
Douglas Farrar said that the FTC was “disappointed” with the outcome, given the threat the merger poses to the open competition of cloud gaming, subscriptions services, and consoles. We’ll announce our next move in the coming days to continue our battle to protect consumers and preserve competition.
In the past, the FTC dropped cases when it lost a request for injunction. After a deal has been closed, it is usually harder to contest and break up.
Microsoft and Activision can now close their deal in the US before the July 18 deadline they set when they announced their transaction.
In the UK, the Competition and Markets Authority has blocked the deal since April. They argued that it would hinder the growth of cloud gaming.
The CMA issued a statement following the US court’s ruling on Tuesday, saying that it would “consider any proposals” from Microsoft regarding a restructured transaction to address its concerns. This was a radical departure from the CMA’s initial decision.
The CMA said that it agreed with the companies on the grounds that “a stay in litigation in the UK is in the public’s interest.” Hearings were scheduled to start at the UK appeals tribunal starting July 28.
Brad Smith, Microsoft’s vice-chairman and president, expressed his “gratefulness” at the California decision, adding that “our focus is now back on the UK”. Microsoft may not agree with CMA’s concerns but Brad Smith, vice-chair and president of Microsoft, said that “our focus now turns back to the UK”.
Bobby Kotick told his staff that Activision’s chief executive would be able to “get full regulatory approval around the world” if the California ruling was upheld.
The FTC case was an unusual attempt by the agency to stop a “vertical merger” that involves two companies operating in different sectors of an industry. In the past, US courts were more likely to reject “horizontal” mergers that involved two companies operating in the same industry.
The agency said that the acquisition will hurt competition on the market for video game consoles, where Sony’s PlayStation is ahead of Microsoft’s Xbox. It warned that the software company would be strongly motivated to boost Xbox sales if it withheld games like Call of Duty from rival consoles.
The FTC argued that the deal would give too much power Microsoft’s Game Pass subscription service, which sells video games via subscriptions. It could also allow it to dominate cloud gaming, a nascent online streaming market.
The companies had claimed that the deal would improve competition in video games. They had also warned, during a five day hearing in front of Judge Corley at the end of last month, that an injunction was almost certain to kill their deal.