After nearly two decades of seemingly good behavior following a drawn-out battle with the U.S. Justice Department in the late 1990s, Microsoft Corp. is under federal scrutiny once again.
On Thursday, the Federal Trade Commission filed a complaint to block Microsoft’s
proposed $69 billion deal to buy videogame maker Activision Blizzard Inc.
in what would be the biggest acquisition ever for both the software giant and the videogame industry. The complaint was still not yet publicly available late Thursday afternoon. The FTC said in a statement that if the deal were to be completed, it would let Microsoft suppress competitors of its Xbox business.
Wall Street had been expecting the FTC to block the deal, and Activision shares slipped only 1.57% Thursday, while Microsoft shares rose slightly.
Soon after the FTC news came out, Microsoft issued a statement saying that it has been committed to “addressing competition concerns.”
Santa Monica, Calif.-based Activision, which makes the popular “Call of Duty” videogame, tried to reassure employees. “This sounds alarming, so I want to reinforce my confidence that this deal will close,” Activision Chief Executive Bobby Kotick said in a letter that was made public. “The allegation that this deal is anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge.”
But that may be an overly optimistic point of view. The government has been under big pressure to rein in Big Tech for the past few years, and not much has actually changed. In addition, Microsoft, which has portrayed itself as squeaky-clean for the past decade-plus, has recently drawn the ire of its rivals. As MarketWatch’s Jon Swartz reported last year, the four other tech giants — Apple Inc.
Meta Platforms Inc.
and Amazon.com Inc.
— are all under some sort of federal investigation, and have claimed that Microsoft has hypocritically presented itself as the “white knight” of Big Tech.
This case, it would appear, has actual legs. The FTC noted in its statement that it had concerns about Microsoft’s “record of acquiring and using valuable gaming content to suppress competition from rival consoles,” and it cited the $7.5 billion acquisition it completed in 2021 of ZeniMax Media, the parent company of Bethesda Softworks. When that deal was completed, Microsoft made some of its popular games exclusive to Xbox and PCs only, “despite assurances it had given to European antitrust authorities that it had no incentive to withhold games from rival consoles,” the FTC said.
Doug Creutz, a Cowen & Co. analyst, said that even though the FTC was expected to make a move, the suit as described presented challenges. “Given this challenge, and ongoing scrutiny in the EU and U.K., we now think the chance of the deal closing is around 30%.”
Creutz said that he believed it is now likely that the U.K. Competition and Markets Authority and the EU’s antitrust regulators could follow in the footsteps of the FTC.
“At a certain point, Microsoft may decide that the total litigation, distraction and public-relations costs are too high, and choose to walk away from the transaction,” Creutz said in a note to clients.
Brandon Ross, a general partner at LightShed Ventures, speculated on Twitter that Activision’s Kotick might actually want to the deal to fall apart. Microsoft would be on the hook to pay Activision between $2.5 billion and $3 billion if the merger is terminated due to an injunction or a judgment arising from antitrust laws, according to the merger agreement. Ross said that amid all of Kotick’s problems — referring to multiple sexual harassment and misconduct allegations against the company — Activision would get up to $3 billion in cash on its books that it could use for acquisitions.
Whatever happens going forward, it is becoming clear that federal antitrust regulators are stepping up to the plate, where Congress has failed. And Microsoft is no longer going to be seen as the recovered monopolist turned white knight.