Microsoft deal to buy Activision can go forward, US judge says

A U.S. judge ruled on Tuesday that Microsoft MSFT.O, maker of the Xbox gaming console, may proceed with its planned acquisition of videogame maker Activision Blizzard ATVI.O for $69 billion, dealing a blow to President Joe Biden’s efforts to prevent corporate consolidation that some argue hurts consumers.

Shortly after the judge’s ruling, Britain’s Competition and Markets Authority (CMA), which had objected to the deal in April, said it was prepared to consider Microsoft’s proposals to resolve antitrust concerns in the UK.

The deal would be the largest for Microsoft and the biggest in the history of the videogame business. Activision shares were up 11.3% at $92.01 on Tuesday afternoon and Microsoft shares were flat.

The Federal Trade Commission had asked U.S. District Judge Jacqueline Scott Corley in San Francisco to stop the proposed deal, arguing it would give Microsoft exclusive access to Activision games including the best-selling “Call of Duty.” The agency’s concern was that the deal would potentially preclude the availability of those videogames on other platforms.

In her opinion, Corley disagreed.

“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,” she wrote.

Corley’s decision is another setback in the Biden administration’s efforts to step up antitrust enforcement efforts.

The U.S. court in San Francisco gave the FTC until Friday to appeal the judge’s decision.

FTC spokesperson Douglas Farrar said the antitrust regulator 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.”

Microsoft President Brad Smith said on Tuesday that the company was “grateful” for the “quick and thorough” decision. He also tweeted that his focus would now be on Britain. “While we ultimately disagree with the CMA’s concerns, we are considering how the transaction might be modified  in order to address those concerns in a way that is acceptable to the CMA.”

RBC Capital Markets analyst Rishi Jaluria said the deal would make Microsoft the third-biggest gaming company in the world and “the market clearly did not expect that and hence why Activision stock is up 11% right now.”

At issue in the Microsoft-Activision deal is leadership in a gaming market whose sales are expected to increase by 36% over the next four years to $321 billion, according to a PwC estimate. While much of the testimony in the recent trial focused on “Call of Duty,” Activision produces other bestsellers like “World of Warcraft,” “Diablo” and the mobile game “Candy Crush Saga.”

The FTC had argued that Microsoft would be able to use the Activision games to leave rival console makers like Nintendo 7974.T and market-leader Sony Group 6758.T out in the cold.

The FTC’s complaint had cited concerns about loss of competition in console gaming, as well as subscriptions and cloud gaming.

To address the agency’s concerns, Microsoft agreed to license “Call of Duty” to rivals, including a 10-year contract with Nintendo 7974.T, contingent on the merger closing. During the five-day trial in June, Microsoft CEO Satya Nadella argued the company would have no incentive to shut out Sony’s 6758.T PlayStation or other rivals in order to sell more Microsoft Xbox consoles.