Activision’s $69 billion purchase of Microsoft is facing intense scrutiny from regulators — and some insiders at the game studio behind “Call of Duty” fear the Xbox maker could effectively blow the deal, The Post has learned.
Antitrust authorities in the US, UK and EU are reviewing the proposed deal, which would buy Microsoft Activision for $95 per share.
Activision’s stock jumped above $82 when the acquisition was announced in January, but has since fallen below $73 as of Thursday, indicating increased investor skepticism about the ongoing deal.
Some insiders and analysts said Microsoft – which has enjoyed a better relationship with regulators in recent years than competitors such as Meta and Google – likely did not expect this level of scrutiny from the authorities. Sources close to the situation said the mounting pressure has left the companies at odds behind the scenes, even as Activision and Microsoft publicly put brave faces and insist on closing the deal.
What’s at stake are the promises — or lack thereof — that Microsoft would make to antitrust regulators and gaming competitors such as PlayStation manufacturer Sony, which has loudly opposed the deal.
Microsoft Games CEO Phil Spencer has publicly stated that the company plans to continue releasing Activision’s popular “Call of Duty” series on PlayStation, as well as potentially bringing it to other consoles such as the Nintendo Switch.
But Microsoft refused to offer EU regulators any legal remedies ahead of an expected wide-ranging investigation that could begin on November 8, Reuters reported last week. Microsoft had the option of offering so-called behavioral therapies in the EU, such as a formal promise to keep “Call of Duty on PlayStation”, but it refused to do so. The company could still do so later during a large-scale investigation.
Activision insiders and analysts said Activision led by Bobby Kotick would prefer Microsoft to take a more favorable stance with regulators now, since the game maker’s shareholders will get paid regardless of whether Microsoft makes concessions.
“If you’re Activision, you want Microsoft to give everything for free forever,” a hedge fund analyst closely affiliated with the deal told The Post. “But that obviously destroys the economics of the deal.”
Some analysts and critics argue that the option to keep Activision games exclusively on Xbox is a big part of the deal’s appeal for Microsoft, despite the company’s statements about keeping “Call of Duty” available on PlayStation. While offering public assurances is one thing, being legally bound to give up exclusivity could be a deal breaker, sources said.
“Microsoft’s decision to buy Activision is about exclusivity,” Dan Ives, managing director of Wedbush Securities, told The Post. “If giving up exclusivity is one of the compromises required, Microsoft will have to think long and hard if this is the right deal.”
“Microsoft does not buy this asset, so other companies can use Activision games as much,” Ives added. “It’s all about what the perks are.”
Likewise, Clay Griffin, Research Analyst at Moffett Nathanson, said: “Microsoft cannot be forced to accept harsh terms.”
If the European Commission, the UK’s Competition and Markets Authority or the US Federal Trade Commission squashes the deal, Microsoft will have to pay Activision $3 billion in dismantling fees – a relative drop in the $1.7 trillion tech giant’s conglomerate.
In a statement to The Post, an Activision spokesperson said, “We deeply value our close working relationship with Microsoft. We are confident in the deal and its progress, and we know Microsoft is working hard to get it done. Any suggestion to the contrary is false.”
In a statement to The Post, a Microsoft spokesperson said, “From the moment this acquisition was announced, we have worked urgently to show that we are serious about taking the necessary steps to gain approval – including making proactive commitments on how we will conduct business with gamers.” And the developers are in the center. The process has progressed as expected and you will continue to expect the deal to close on schedule.”
However, Microsoft is legally obligated to use its “best efforts” to close the deal — and the Xbox maker Activision could sue if it believes the Satya Nadella-led company intentionally blew up the acquisition.
While Activision’s latest “Call of Duty” game was by far the best-selling game in franchise history, Barron’s reported, the collapsed deal could still pose a financial threat to the company.
Activision’s shares were trading 10% below their current price before the Microsoft deal was announced in January — and the company was beset by a widespread alleged sexual misconduct scandal.
Meanwhile, Microsoft shares have fallen more than 35% so far in 2022 amid rising inflation and interest rates, while the heavy Nasdaq Composite has also fallen by roughly the same amount.
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