Microsoft is prepared to defend its $69 billion Activision deal

Microsoft Corp. is prepared to defend its $69 billion acquisition of gaming company Activision Blizzard Inc. if the US Federal Trade Commission files a lawsuit to block the transaction, according to a source with knowledge of the situation.

The Xbox manufacturer has not discussed remedies or concessions with the FTC to approve the deal, said the person who requested anonymity to discuss a confidential matter. The FTC staff is nearing the conclusion of its investigation and is expected to issue a recommendation shortly, the source added. The FTC commissioners would then vote on whether a case should be filed.

If the FTC attempts to block the case, Microsoft is preparing to challenge that decision in court, according to a person who requested anonymity to discuss internal strategy. Jennifer Rie, an antitrust analyst at Bloomberg Intelligence, said it wouldn’t surprise her if the FTC filed a lawsuit to block the deal. However, she cautioned that a court battle would be difficult for enforcers to win. Microsoft could emerge victorious, even though a legal action could extend beyond the deal’s expiration date. Microsoft has stated that the transaction will be finalized by June 30.

In the face of an FTC challenge, Microsoft’s alternative option would be to abandon the transaction. Microsoft did this in 1995 when the US government sued to block its acquisition of accounting software maker Intuit Inc., stating that it did not wish to engage in a protracted legal battle.

Microsoft’s best chance of gaining approval to acquire Activision is to convince the Biden administration to accept a settlement in which it promises not to withhold its popular titles from competitors.

But Biden’s antitrust enforcers don’t like these deals, especially after the Ticketmaster scandal brought attention back to a failed 2010 Justice Department settlement with Live Nation Entertainment Inc.

The FTC is tough on mergers, especially regarding technology and digital markets, but it hasn’t said if it will sue to stop the deal.

The agency filed a lawsuit in July to stop Meta Platforms Inc. from buying the virtual reality fitness app Within. It said the deal could kill “nascent competition” in a few markets.

Microsoft and the FTC declined to comment. Politico reported last week that the FTC is likely to challenge the deal.

The US is one of at least three countries where regulators ask about the massive deal. The deal would completely change the video game industry and put Microsoft in third place behind Tencent Holdings Ltd. and Sony Group Corp. in the global games market.

Antitrust groups in Europe and the UK have raised questions about whether gamers will still be able to play the famous Call of Duty games on Sony’s PlayStation console and whether the merger would let Microsoft take the lead in the growing but still small cloud-gaming services market.

A person said that Microsoft had offered Sony a deal in which Call of Duty games would be available on the PlayStation for ten years. However, the companies need to figure out how to pay for this deal.

The person said that the software giant has advised regulators of those discussions but has yet to formally make a remedy proposal because the review process hasn’t advanced to that stage.

Microsoft wouldn’t be smart financially or strategically to keep the best-selling game series from PlayStation since more copies of the games are sold on PlayStation than on Xbox, and doing so would make gamers angry, which could hurt Microsoft. The person said that Microsoft wouldn’t be able to make money on the deal if it stopped Call of Duty on PlayStation.

Due to the different stages of the different international investigations, Microsoft will likely discuss this step first with the European Commission. The European Commission has until March 23 to finish its in-depth review of the deal.

Microsoft is hoping the remedies it offers the EU will suffice globally, the person said. But UK regulators may want the company to take more steps.

The UK’s Competition and Markets Authority is looking into the deal more closely. This is because an initial investigation found problems in the markets for gaming consoles, subscription services for multiple games, and cloud gaming.

In a document from October that explained the scope of its investigation, the watchdog said it was worried that the deal could give Microsoft too much market power, which would let it cut off competitors like Sony. Although Microsoft has promised it wouldn’t do this due to reputational damage to Xbox or Call of Duty, the watchdog said it hadn’t identified “persuasive evidence” to believe those statements.

The UK agency has ramped up scrutiny of big tech companies’ dominance since it gained new powers post-Brexit.

Microsoft and the CMA will be at the main party hearing in the middle of December in the UK merger process. This will give them a chance to talk about and test their arguments. An interim decision by the agency is expected by January, and the full decision deadline is March.

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