It has been working for nearly a year to allay regulators’ concerns about its acquisition of the video game developer
Activision Blizzard a company ,
But the FTC’s suit to block the deal has cast doubt on the company’s pledge not to exclude competitors.
This week, the Federal Trade Commission took one of its biggest ever swings against a major tech company and… sued to stop the planned $75 billion acquisitionpaving the way for a court challenge over a deal the antitrust agency said would hurt competition.
The commission’s complaint said the deal was illegal because it would give Microsoft the ability to control how consumers access Activision’s games other than users of its Xbox consoles and subscription services. Microsoft has repeatedly said that it will not participate in such actions. The FTC complaint accused Microsoft of reneging on a similar pledge to a European regulator in the past, a criticism the company disputes.
Earlier this week, with the potential for lawsuit mounting, Microsoft touted the deal’s benefits to gamers with an op-ed in The Wall Street Journal and announced an agreement to give a competitor access to one of Activision’s most popular games. The Federal Trade Commission filed its lawsuit on Thursday.
In its complaint against Microsoft, the Federal Trade Commission said, “The proposed acquisition, if carried out, could significantly reduce competition or tend to create a monopoly.”
It will take a long time to get all the required approvals from regulators around the world, said executives at the Redmond, Washington company, and it has given itself nearly 18 months to the process. The deal may now miss Microsoft’s mid-2023 deadline, and some analysts have said Microsoft may want to abandon the acquisition.
John Freeman, vice president of investment research firm CFRA Research, wrote in a note to investors that Microsoft should “take the hint and walk away from a deal that, if concluded, could result in a Pyrrhic victory from executive distraction and expensive regulatory perks.” .
Microsoft’s big ambitions are at stake in its video game business, which brought in $16 billion in revenue in the company’s most recent fiscal year. This total represents less than 10% of Microsoft’s total revenue. The business is an important part of Microsoft’s diversification plans to attract more non-corporate customers.
The FTC’s move came after the company had avoided the brunt of the anti-tech backlash in recent years.
Stifel Nicholas Brad Reback, an analyst, said the lawsuit represented “a somewhat meaningful setback” for Microsoft due to the company’s longstanding lobbying efforts. “They worked hard to stay on the right side of government agencies.”
Microsoft Representative in Washington – Vice President and President Brad Smith –Relationships are built in the capital for decades. He helped cement an image of the software giant as one of the friendly tech pioneers, an enviable position in a regulatory environment that was increasingly hostile to the tech giants.
One of the longest-serving leaders within Microsoft, Mr. Smith joined the company in 1993 and was counsel through its bitter antitrust disputes with regulators around the world in the 1990s.
“We have been committed from day one to address competition concerns, including by submitting proposed concessions earlier this week to the Federal Trade Commission,” Mr. Smith said after filing the lawsuit. “While we believed in giving peace a chance, we have complete confidence in our cause and welcome the opportunity to present our case in court.”
In its complaint, the FTC accused Microsoft of suppressing competition by competitors through Its 2021 acquisition of ZeniMax Media Inc., parent of “Doom” developer Bethesda Softworks, despite giving assurances to European antitrust authorities that it would do otherwise. Microsoft said ZeniMax’s claim from the FTC is misleading.
Microsoft officials expressed confidence in closing the Activision deal, which was valued at $68.7 billion after adjusting for Activision’s net funds. Lawmakers and industry representatives said it would be difficult for any of the largest US tech companies — including
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Amazon.com a company ,
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Owner of Meta Platforms Inc. – to win approval for a major acquisition in the current political environment.
In recent years, with increasing government scrutiny and competition among the biggest tech companies, Microsoft has tried to appease regulators.
For example, in May, Microsoft announced the release of set of principles It will stick when doing business with cloud service providers in Europe, hoping to allay its cloud business concerns It was hurting European cloud companies. The principles included commitments to work with European cloud providers and to support the success of Microsoft’s cloud-based software vendors.
Amid concerns that the deal could hurt attempts to unite at Activision or elsewhere in the games industry, Microsoft said in June it would He was open to working with any trade unions that you want to organize.
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Others said they worried the acquisition could leave competitors cornered from Activision’s popular “Call of Duty” franchise, Microsoft this week. He said she would make it available For the first time on Nintendo Co.’s Switch game consoles in at least 10 years.
Microsoft this week also made its case public. “Preventing our takeover will make the gaming industry less competitive and make gamers worse off,” Mr. Smith wrote on Monday. Editorial article in the journal. “Think about how better it would be to stream a movie from your couch than drive to a Blockbuster. We want to bring the same kind of innovation to the video game industry.”
It’s too early to tell whether the FTC can succeed in blocking the takeover. The agency will likely have to appear before a federal judge, said Eric Talley, a professor at Columbia Law School, a process that could take months to unfold.
It may be difficult for the regulator to win the case because courts have not traditionally seen deals between specialized companies at different stages of the production process in the same industry — so-called vertical mergers — as competitive risks, he said.
“It may take the authority to convince the judge to change the law to some extent,” he said. “This makes it difficult for the FTC to win, even though they presumably knew this was happening.”
Write to Sarah E. Needleman at [email protected]
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