The $69 billion Activision purchase of Microsoft is now under intense scrutiny. Insiders at “Call of Duty”, which makes up part of the Xbox maker, fear that it could actually thwart the deal.
All three antitrust authorities in the United States, United Kingdom, and European Union are reviewing the deal that would see Microsoft acquire Activision for $95 each share.
Activision shares shot up to $82 at the time of the January buyout announcement, but have since dropped to below $73 by Thursday, which indicates that investors are increasingly skeptical about the deal’s success.
According to some analysts and insiders, Microsoft did not anticipate this level of scrutiny from authorities. Although it has had a stronger relationship with regulators over the years than its rivals Meta and Google, Microsoft is still in a difficult position. Sources close to this situation claim that companies are now at odds, despite Activision and Microsoft publicly trying to keep the deal alive, despite the increased pressure.
It is about the promises that Microsoft makes to antitrust regulators, as well gaming rivals like Sony PlayStation Maker. Sony has strongly opposed the deal.
Phil Spencer, Microsoft gaming CEO has made it clear that Activision’s popular series “Call of Duty”, will continue to be released on PlayStation 2, as well as possibly being available for other consoles like Nintendo Switch.
Microsoft declined to offer EU regulators any legal recourses ahead of an expected full scale probe, Reuters reported last Thursday. Microsoft could offer the EU so-called “behavioral solutions”, such as a formal promise that it would keep “Call of Duty: PlayStation” online, but declined to do so. It could do so again during a larger probe.
Activision, led by Bobby Kotick, would prefer Microsoft to take a more accommodating position with regulators now. The game-maker’s shareholders are guaranteed to get paid, Activision insiders stated.
According to a hedge fund analyst, “If Activision is your company, you want Microsoft forever to offer everything for free.” The Post was told by a close observer of the deal. “But this obviously destroys economics of deal.”
Critics and analysts argue that Microsoft is making Activision games available exclusively on Xbox, which is contrary to the company’s stated intention to make “Call of Duty” accessible on PlayStation. Sources indicated that, while it is possible to give public assurances, legally binding exclusives could make the deal less attractive.
The Post was told by Dan Ives (Managing Director, Wedbush Securities), that Microsoft’s decision to purchase Activision is about exclusivity. Microsoft must consider carefully if giving up exclusivity would be a concession.
Ives said that Microsoft has no intention of buying the asset in order to make Activision games available to other companies. It all comes down the concessions.
Clay Griffin, MoffettNathanson research analyst, stated that Microsoft cannot be forced into accepting draconian conditions.
Microsoft will need to pay Activision $3 billion if the European Commission, UK Competition and Markets Authority and American Federal Trade Commission reject the deal. It’s a relatively small sum for the $1.7 Trillion tech giant.
Activision spoke out to The Post, saying that it was grateful for the close working relationship they have with Microsoft. We are confident about the deal and its progress. We know Microsoft is working hard to achieve it. Any suggestion that the contrary might be true is false.
Microsoft’s spokesman said in a statement that it had made to The Post: “From the moment the acquisition was announced, I’ve worked tirelessly to show that we’re serious about making the necessary steps to gain approval. This includes making proactive commitments about how our business will operate with gamers and developers at The Center. Although the deal is expected to close on schedule, it has moved as expected.
Activision can sue Microsoft for failing to make the deal. Activision may also sue Microsoft if Satya Nadella is accused of deliberately blowing up the deal.
Activision’s “Call of Duty” is still the most successful franchise game, Barron’s reported says, but the possibility of the deal being canceled could still pose a financial danger to the company.
Activision shares were trading at about 10% less than their current price prior to the Microsoft deal in January. The company was also reeling from an extensive alleged sexual misconduct.
Microsoft shares are down more than 35% since 2022 due to rising inflation and high interest rates. Meanwhile, the tech-rich Nasdaq Composite Index has dropped by about the same amount.