Microsoft and Activision face potential FTC challenge as $75bn deal draws scrutiny

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Microsoft is about to face a court showdown with the US government for the first time in 25 years, as the Federal Trade Commission (FTC) seeks to prevent the company from closing its planned $75 billion acquisition of Activision Blizzard.

The hearing, taking place in federal court in San Francisco, comes after the FTC filed for an injunction to halt the deal until the outcome of a separate antitrust challenge is determined.

This confrontation marks Microsoft’s first antitrust case against the US since the Department of Justice accused it of using illegal means to maintain its PC monopoly in the 1990s. Although a court initially ordered the company to be broken up in 2000, the decision was overturned on appeal and the case was later settled.

Last year, the FTC initiated legal action to block the Activision deal and has a case scheduled to begin on August 2. However, the agency turned to federal court earlier this month to prevent the deal from closing before then, arguing that this move would avoid any harm to competition while the case is being considered.

The FTC claims that Microsoft, after acquiring Activision, would have a strong incentive to make Activision’s popular games, including the Call of Duty franchise, exclusive to its own platforms. The agency argues that this would negatively impact competition in the console gaming, subscription game libraries, and cloud gaming markets.

Unlike the UK’s Competition and Markets Authority, whose concerns are focused on the potential harm to the emerging cloud gaming market, the FTC’s objections are broader. The European Commission has already approved the acquisition.

In a recent filing, Microsoft and Activision stated that the price Microsoft agreed to pay for Activision was based on expanding the availability of its games, not restricting them. They also argued that even if the games were withheld, it would only have a minimal impact on Sony’s dominant position in console gaming. Microsoft claims to have offered Sony a 10-year license to Activision games, but Sony allegedly rejected the offer in an attempt to thwart the acquisition.

The deadline for Microsoft to complete the purchase is July 18, but the pressure to finalize the deal before the FTC’s administrative law case begins adds additional urgency. Failure to complete the deal would result in a $3 billion break-up fee. In their filing, the companies asserted that a preliminary injunction delaying the closure would likely jeopardize the transaction.

Both Microsoft and Activision have actively advocated for the acquisition to proceed as originally planned. According to an insider, they are open to extending the deal if the FTC successfully blocks the immediate closure.

The CEOs of Microsoft (Satya Nadella) and Activision (Bobby Kotick) are among the witnesses scheduled to testify in person during the five-day hearing.