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Microsoft has moved closer to securing its $75bn purchase of Activision Blizzard after a US federal judge rejected the Federal Trade Commission’s attempt to halt the deal and the UK’s competition watchdog signalled it was open to discussing a merger it had previously rejected.
Shares in Activision, the group behind video games including Call of Duty, were up more than 11 per cent at $92 in lunchtime trading in New York, their closest to the $95 per share offer price since Microsoft announced its bid in January 2022.
“The FTC has not shown it is likely to succeed on its assertion the combined firm will probably pull Call of Duty from Sony PlayStation, or that its ownership of Activision content will substantially lessen competition in the video game library subscription and cloud gaming markets,” judge Jacqueline Scott Corley wrote in her decision.
The FTC has until Friday to appeal against the decision. The agency had sought a preliminary injunction to block the deal pending the outcome of a separate challenge it has mounted in its in-house court, where proceedings are due to start on August 2.
The ruling deals a heavy blow to one of the most high-profile antitrust challenges under Joe Biden’s administration, which has appointed progressive officials such as FTC chair Lina Khan to crack down on anti-competitive conduct across the US economy.
Douglas Farrar, FTC spokesperson, said the agency was “disappointed in this outcome given the clear threat this merger poses to open competition in cloud gaming, subscription services, and consoles. In the coming days we’ll be announcing our next step to continue our fight to preserve competition and protect consumers”.
The FTC has previously dropped cases after losing a request for an injunction. Deals are typically harder to challenge and break apart after their closure.
The judge’s decision clears the way in the US for Microsoft and Activision to close their deal before July 18, the deadline set when they announced the transaction.
The two companies still face an obstacle in the UK, where the Competition and Markets Authority blocked the deal in April, arguing it would hamper growth in cloud gaming.
But the CMA followed Tuesday’s US court ruling with a statement saying it was ready to “consider any proposals from Microsoft to restructure the transaction in a way that would address” its concerns, a sharp departure from its initial decision.
The CMA added that it had agreed with the companies that “a stay of litigation in the UK would be in the public interest.” Hearings had been scheduled to begin at the UK’s appeals tribunal on July 28.
Brad Smith, Microsoft’s vice chair and president, said he was “grateful” for the decision in California, adding that “our focus now turns back to the UK”. While Microsoft disagreed with the CMA’s concerns, he said, “we are considering how the transaction might be modified in order to address those concerns in a way that is acceptable to the CMA”.
Bobby Kotick, Activision’s chief executive, told staff that the ruling in California “signals a path to full regulatory approval elsewhere around the globe”.
The FTC’s case marked an unusual attempt to block a “vertical” merger, which involves two companies that operate in different parts of an industry. US courts have been more willing in the past to bar “horizontal” deals that combine two companies in the same market.
The agency claimed that the acquisition would hurt competition in the video game consoles market, where Microsoft’s Xbox trails Sony’s PlayStation. The software company would have a strong incentive to boost Xbox sales by withholding games like Call of Duty from rival consoles, it warned.
The FTC also argued the deal would hand too much power to Microsoft’s Game Pass service, which sells games through subscriptions, while also potentially allowing it to dominate the nascent market for streaming games over the internet, known as cloud gaming.
The companies had argued the deal would benefit competition in video games and had warned during a five-day hearing before judge Corley late last month that an injunction would almost certainly kill their deal.
Additional reporting by Javier Espinoza and Tim Bradshaw