Last week, Federal Trade Commission Secretary April Tabor signed an order withdrawing the agency’s case against Microsoft and its proposed $69 billion acquisition of Activision Blizzard. The withdrawal order states the entire matter has been withdrawn from adjudication and all proceedings before the administrative law judge have been stayed.
The withdrawal followed a federal judge’s denial of the FTC’s request for a preliminary injunction designed to stop the deal.
“After considering the parties’ voluminous pre-and-post hearing writing submissions, and having held a five-day evidentiary hearing, the Court DENIES the motion for preliminary injunction,” wrote U.S. District Judge Jacqueline Scott Corley in her redacted ruling dated July 10. “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.”
The judge noted in her 53-page decision that Microsoft’s proposed acquisition of Activision Blizzard is the largest in tech history and deserves to be reviewed and thoroughly examined.
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The withdrawal of the case by the FTC also followed a request by Microsoft and Activision Blizzard that the FTC remove the case from adjudication.
“Withdrawal would advance the public interest and the core purpose of Rule 3.26(c). After a five-day evidentiary hearing, the district court found that the FTC is unlikely to succeed on any of the theories of competitive harm advanced in its Complaint for multiple, independently sufficient reasons,” the companies said in their motion to withdraw.
“In addition, in the wake of the district court’s findings and the court of appeals’ denial of injunctive relief pending appeal, Microsoft signed a 10-year, binding agreement with Sony, the principal complainant against the transaction, to keep Call of Duty on PlayStation following the acquisition of Activision Blizzard,” Microsoft and Activision Blizzard said. “Under these circumstances, withdrawal from adjudication is not only mandated by regulation, but would enable the Commission to make a reasoned determination whether to proceed without the ordinary adjudicative constraints of Part 3, including the ban on ex parte communications between the Commission and Complaint or Respondents’ Counsel.”
In a Securities and Exchange Commission filing the following day, Activision Blizzard indicated that it had agreed with Microsoft to postpone the closure of the deal until October 18, three months after the original deadline of July 18. This extension gives the parties time to earn the UK’s Competition and Markets Authority approval of the merger which they denied in April. Since then, the European Commission has approved the deal, and the FTC is standing down. Brad Smith, vice chair and president of Microsoft, shared the news on Twitter last Wednesday.
He also shared this tweet.
Insider Take
Microsoft has been trying to secure this deal since January 2022 and has been jumping regulatory hurdles ever since to make it happen. Out of three major agencies, there is only one holdout – the UK’s CMA. If the CMA is willing to reevaluate their findings, it is possible this deal may actually close. If not, Microsoft will owe termination fees to Activision Blizzard, starting at $3 billion and going as high as $4.5 billion, depending on if and when the deal is terminated.
There are a lot of regulatory lessons to be learned here. Here are two: (1) Regulatory agencies don’t always win. Just because they have a big dog in the fight doesn’t mean they will prevail. They must apply the same rules and investigations to all companies. (2) Big dogs like Microsoft don’t give up, and they have more resources than government agencies to prevail when
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