M&A: Microsoft and Activision – $75 billion deal in court hearing

Satya Nadella, the chief executive behind Microsoft’s planned $75 billion acquisition of Activision, made a last-ditch attempt to save the deal in a San Francisco courtroom yesterday, in the face of a US government objection. The acquisition of the gaming company would almost certainly collapse if the judge rules in favour of the Federal Trade Commission. The agency is seeking a preliminary injunction to stop the deal closing while it pursues a parallel case in an administrative court.

Microsoft swears under oath to confirm Sony’s Playstation licence

During the hearing, supporters of the deal are once again hopeful. Judge Jacqueline Scott Corley repeatedly prodded an expert witness called by the Federal Trade Commission (FTC) over his analysis of the deal. She also cut off the agency’s lawyer during questioning a number of times and requested a Microsoft executive to swear under oath that the company would grant Sony’s PlayStation a 10-year licence for Activision’s most popular game, Call of Duty — a central issue in the case.

If the FTC loses its bid for a preliminary injunction, it would throw the agency’s separate case in the administrative court into doubt. Earlier this year the agency abandoned further action against Meta after failing to get a preliminary injunction blocking that company’s purchase of virtual reality game company Within.

Most talked-about M&A deal

A similar outcome in the Activision case would leave the UK’s Competition and Markets Authority as the only regulator to stand in the way of the deal. Closing arguments in the US hearing are due today, and a decision could come as early as Monday.

Microsoft Chief Executive Satya Nadella used his 40-minute appearance in federal court to underline his company’s claim that larger gaming rival Sony was seeking to have the deal blocked for competitive reasons, rather than because it was genuinely worried about losing access to Activision’s titles. Nadella said he would guarantee “100 per cent” that Microsoft would make Call of Duty available on PlayStation, and that it made “no economic sense and no strategic sense” to limit the game to his company’s Xbox console.

The dominant player has defined market competition using exclusives, so that’s the world we live in. I have no love for that world.” Satya Nadella, CEO – Microsoft (referring to Sony Playstation)

Much of the hearing has turned on technical questions about the video games market, with the FTC claiming that Microsoft would have too much power for high-performance game consoles occupied by Xbox and PlayStation, as well as separate markets for multi-game subscription services and cloud streaming.

Microsoft, by contrast, has sought to paint itself as the third-biggest player in a larger console market that also includes Nintendo’s Switch. Also, rather than separate markets, it claims that its Game Pass subscription service is merely an alternative way to pay for games, while cloud streaming is only a feature of console gaming.

Backers of the deal have shown mixed support for the subscription-based streaming of games. Bobby Kotick, chief executive of Activision, said in court that such services, which give players access to a library of games for a flat price, “degrade the economics” of games. Pointing to the losses stemming from Hollywood’s streaming video wars, he added: “I have a general aversion to the idea.”

Related topics:

M&A – Microsoft’s takeover of Activision Blizzard (www.larryutley.com)

Microsoft in court battle over acquisition of Activision (www.larryutley.com)

Did you know that the SiGMA Forex Summit takes place in Cyprus in September?