According to the US antitrust authorities, the proposed acquisition would allow the tech firm to stifle competition in gaming.
The US Federal Trade Commission will sue to prevent Microsoft from acquiring video game developer Activision Blizzard for $75 billion, citing fears that the deal will harm competitors to Microsoft's Xbox consoles and cloud-gaming business.
The antitrust watchdog issued the lawsuit on Thursday after a 3-1 vote. It is the latest in a series of roadblocks for the deal, which is also being investigated by the UK Competition and Markets Authority and the European Commission.
“Today we seek to stop Microsoft from gaining control over a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing gaming markets,” Holly Vedova, director of the FTC’s bureau of competition, said in a statement.
The Activision acquisition would be Microsoft's largest ever, elevating it to the third-largest gaming company in terms of sales, trailing China's Tencent and Japan's Sony.
Activision's stock closed 1.5 percent lower, while Microsoft's stock rose roughly 1.2 percent.
The action is one of the most significant yet for FTC chair Lina Khan, who has promised to rein down Big Tech's market clout. She is one of the progressive antitrust officials chosen by President Joe Biden to combat anti-competitive behaviour in corporate America.
The FTC stated in a news statement that Activision is one of the few video game developers that makes and publishes top video games such as Call of Duty and World of Warcraft for a variety of devices such as PCs, consoles, and mobile phones. According to the watchdog, the agreement would change that.
“With control over Activision’s blockbuster franchises, Microsoft would have both the means and motive to harm competition by manipulating Activision’s pricing, degrading Activision’s game quality or player experience on rival consoles and gaming services, changing the terms and timing of access to Activision’s content, or withholding content from competitors entirely, resulting in harm to consumers,” the FTC said in its release.
Call of Duty, the blockbuster game that has earned Activision $30 billion in lifetime sales, has received special attention. Microsoft has stated that the blockbuster game will be available on other companies' game systems following the deal, rather than becoming exclusive to its Xbox, as some feared. Microsoft announced a 10-year agreement on Wednesday to bring Call of Duty to Nintendo devices for the first time in over a decade.
Microsoft President Brad Smith stated that the corporation has been "dedicated from Day One to addressing competitive issues, including by making proposed concessions to the FTC earlier this week." While we believed in giving peace a chance, we are fully confident in our case and look forward to the opportunity to address it in court."
In a letter to staff, Bobby Kotick, Activision chief executive, expressed his “confidence that this deal will close” and said a claim that the deal was “anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge”.
He also criticised “a regulatory environment focused on ideology and misconceptions about the tech industry”.
Rather than filing in federal court, the FTC will file the case in its in-house court, which will be presided over by an impartial administrative law judge within the agency. Often, enforcement actions cannot be challenged in federal court until the internal proceedings are completed.
Christine Wilson, the FTC's sole Republican commissioner, voted against issuing the administrative complaint.
The FTC opposed last December to another major tech tie-up, Nvidia's $40 billion acquisition of chip manufacturer Arm, which would be the largest semiconductor chip takeover in history. The commission stated at the time that the action would send a "strong signal" that it would "act aggressively" on tie-ups that potentially hinder future innovation. The companies later backed out of the deal.
Microsoft's acquisition became a popular trade for a number of merger arbitrage hedge funds, which were betting on Activision shares eventually rebounding to the $95 per share purchase price agreed upon by Microsoft. Berkshire Hathaway, led by Warren Buffett, was among the investors who executed the move, purchasing just under 8% of Activision's stock to become one of the company's major shareholders.
However, regulatory scrutiny and the possibility of a legal challenge have knocked on shares, which currently trade at a hefty 21% discount to the acquisition price.
By fLEXI tEAM