Final arguments have been presented in a closely watched case that could determine the fate of the biggest tech acquisition in U.S. history. The trial included
testimony from Microsoft (
MSFT) CEO Satya Nadella and Activision's (
ATVI) Bobby Kotick as they faced off against lawyers from the Federal Trade Commission. The suit will also have profound implications on the Biden administration's approach to antitrust enforcement, and
recent crackdowns on the most prominent U.S. tech giants, as the agency flexes its muscles under the leadership of Lina Khan.
What are the concerns? Simply put, the FTC feels that the $69B tie-up between Microsoft - the company behind Xbox - and one of the best-known game developers would
harm competition. Activision's
Call of Duty and
World of Warcraft are some of the most popular gaming franchises, and turning Microsoft into the No. 3 gaming company in the world could limit rivals' access to titles or raise prices for other gaming platforms. The FTC also said it would give the Xbox maker an unfair advantage in the new market for game subscriptions, as well as the emerging market for cloud gaming.
The trial and its timing are critical, as the transaction has a July 18 termination date - after which billions in breakup fees would need to be paid by Microsoft or terms would have to be renegotiated. Meanwhile, the commission is seeking a
preliminary injunction to extend things until August, when an internal court judgment is due and can potentially drag things out for years. Both sides are now watching a pivotal decision by U.S. District Judge Jacqueline Scott Corley in San Francisco, who can make or break the deal over the next few days after hearing their closing arguments.
While the FTC trial is crucial, M&A investors are also keenly
focused on the U.K., where the country's antitrust regulator is set to
hear an appeal on July 28 (the $69B deal was already approved in the EU, China, and other markets). Microsoft has gone to great lengths to assuage antitrust fears, like inking an agreement to bring
Call of Duty to Nintendo (
OTCPK:NTDOY) for the next decade, as well as an offer to extend access to Sony (
SONY). It's been a long slog since the deal was first announced on January 18, 2022, with shares of Microsoft (
MSFT) and Activision Blizzard (
ATVI)
climbing 45% and
30%, respectively, since that date.
SA commentary: "It was right at the end of the hearings that the judge reminded one of the FTC lawyers that it's not the harm to Sony that she cares about; it's any harm to consumers,"
Chris DeMuth Jr., Investing Group Leader of
Sifting the World, told Seeking Alpha. "The FTC would have been better off if she had explained this to them at the beginning. The FTC hardly mentioned consumers, let alone
proved that they'd be harmed, while operating more as Sony lobbyists than American law enforcers. It was a strange spectacle unlikely to be the first such vertical merger to be blocked this century." (
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