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Activision insiders fear Microsoft’s $69 billion merger could collapse

Activision insiders fear Microsoft's $69 billion merger could collapse
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Microsoft’s Acquisition of Activision in a deal valued at US$69 billion is facing heightened scrutiny from regulators – and some insiders at the games studio behind Call of Duty are worried the Xbox maker could effectively bust the deal, The Post has learned.

Antitrust authorities in the US, UK and European Union are all Review of the proposed dealwhere Microsoft would buy Activision for $95 a share.

Activision shares shot above $82 when the acquisition was announced in January but has since fallen below $73 through Thursday, indicating growing investor skepticism about the deal going through.

Some insiders and analysts have said that Microsoft — which has had a better relationship with regulators in recent years compared to rivals like Meta and Google — probably didn’t expect this level of regulatory scrutiny. The mounting pressure has left the companies at odds behind the scenes, sources close to the situation said, even as Activision and Microsoft publicly put on brave faces and insist the deal goes through.

It’s about the promises – or lack thereof – that Microsoft is offering to antitrust authorities and games competitors like PlayStation maker Sony, which has been vocal against the deal.

Microsoft Gaming CEO Phil Spencer has said publicly that the company plans to continue publishing Activision’s popular Call of Duty series on PlayStation and potentially bring it to other consoles such as the Nintendo Switch.

Microsoft Activision
Microsoft’s $69 million acquisition of Activision is under increased scrutiny from regulators.
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However, Microsoft has declined to offer an appeal to EU regulators ahead of an expected full-scale investigation that could start on November 27. 8th, Reuters reported last week. Microsoft had an opportunity to offer the EU what it called a code of conduct, such as a formal promise to keep Call of Duty on PlayStation, but declined. The company could still do so later during a full-scale trial.

Bobby Kotick-led Activision would prefer Microsoft to take a more accommodating stance toward regulators now that the game maker’s shareholders will be paid out regardless of whether Microsoft makes concessions, Activision insiders and analysts said.

“If you’re Activision, you want Microsoft to offer everything for free forever,” a hedge fund analyst closely following the deal told The Post. “But that obviously destroys the economics of the deal.”

Bobby Kotic
Bobby Kotick-led Activision would prefer Microsoft to take a more accommodating stance towards regulators, sources said.
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Some analysts and critics argue that the option to keep Activision games exclusively on Xbox is a big part of the deal’s appeal to Microsoft, despite the company’s claims that it will keep Call of Duty available on PlayStation. While making public assurances is one thing, being legally required to give up exclusive offers could be a dealbreaker, sources said.

“Microsoft’s decision to buy Activision is all about exclusivity,” Dan Ives, managing director of Wedbush Securities, told The Post. “If giving up exclusivity is one of the required concessions, Microsoft will have to think long and hard about whether this is still the right deal.”

“Microsoft isn’t buying this asset so other companies can leverage Activision games to the same extent,” Ives added. “It all depends on what the concessions are.”

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“If you’re Activision, you want Microsoft to offer everything for free forever,” said one hedge fund analyst.
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Clay Griffin, research analyst at Moffett Nathanson, also said, “Microsoft cannot be forced to accept draconian terms.”

If the European Commission, Britain’s Competition and Markets Authority, or America’s Federal Trade Commission scrap the deal, Microsoft will have to pay Activision a $3 billion break-up fee — a relative drop in the ocean for the $1.7 trillion deal heavy technology giants.

In a statement to The Post, an Activision spokesperson said: “We really appreciate our close working relationship with Microsoft. We are confident in the deal and its progress, and we know that Microsoft is working diligently to complete it. Any suggestion to the contrary is wrong.”

In a statement to The Post, a Microsoft spokesperson said: “From the moment this acquisition was announced, we have worked urgently to show that we are serious about taking the steps necessary to gain approval – including proactive commitments on how we will run our business with players and developers at the centre. The process has progressed as expected and we continue to expect the transaction to close as planned.”

Still, Microsoft is legally required to use its best efforts to close the deal – and Activision could sue the Xbox maker if it believes the Satya Nadella-led company intentionally blew up the acquisition.

Satya Nadella
Activision could sue Satya Nadella-led Microsoft if it believes the company blew up the deal.
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While Activision’s latest Call of Duty has been the best-selling game in franchise history to date, Barrons reportsthe failure of the deal could still pose a financial threat to the company.

Activision shares were trading about 10% below their current price before Microsoft’s deal was announced in January — and the company was teetering from a wide-ranging scandal surrounding alleged sexual misconduct.

Meanwhile, Microsoft shares are down more than 35% so far in 2022 amid rising inflation and interest rates, while the tech-heavy Nasdaq Composite Index is also down about the same amount.

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