Opinion: Microsoft faces battle for Activision deal, particularly if ‘Name of Obligation’ is destined for Xbox exclusivity
microsoft corp has received a pass from regulators looking to take on big tech in recent years, but it may have just forfeited that pass by making the largest tech acquisition in history for a troubled company.
Dan Ives, an analyst at Wedbush Securities, said Microsoft is taking advantage of MSFT, -2.43%, to currently get out of regulators’ viewfinders as they have focused on filing lawsuits against Facebook, Google, Apple Inc. AAPL, – levy 1.89%. and Amazon.com Inc. AMZN, -1.99%.
“[Microsoft Chief Executive Satya] Nadella saw a window to make a big bet on the consumer while others were in the regulatory spotlight and couldn’t track an asset like this,” Ives said in a note to clients early Tuesday.
But it’s unclear whether even Microsoft will be able to swallow such a deal. Shares of Activision closed at $82.31 on Tuesday, well below the $95 per share price Microsoft was willing to pay, a sign Wall Street believes the deal will get regulators’ approval could hit a wall. Analysts at Cowen said on Tuesday that the gap between the purchase price and the current price means that “the market appears to be pricing in about a 1 in 3 chance of the deal getting blocked.”
Regarding the antitrust threat, many analysts pointed out that after acquiring Activision, Microsoft would still be the third largest video game company globally, behind China’s Tencent Holdings 700, -2.75% and Japan’s Sony Group 6758, -0.04% ..
While this suggests that the merger would not give Microsoft a dominant position in the video game industry, it could still seriously change the dynamics of the entire industry.
As a content creator, Activision designs games for all of the top gaming platforms, including Sony’s PlayStation. The key competitive advantage that buying Activision could give Microsoft is the ability to give its own system preferential treatment in publishing popular games like Call of Duty, an Activision product that’s one of the best-selling video games in the world .
Sony and other gaming platform owners could argue that favoring Microsoft’s own platforms with Activision’s wide range of games, especially the most popular ones, could hurt consumers. And some analysts expect Microsoft will attempt to do just that, including exclusivizing popular games to its own platforms and banning competitors.
“Ultimately, we believe that Microsoft’s goal is to take away from Sony (and other potential platform competitors such as Google or Apple) the main Activision console franchises, thereby improving its competitive position,” the Cowen analysts argued. “While Microsoft pointed out that ‘Activision Blizzard games are played across a variety of platforms and we plan to continue supporting these communities in the future,’ if we were a PlayStation owner we wouldn’t get much comfort from this inaccurate statement . Cowen analysts believe Sony will likely take legal action to help block the deal and look for a blockbuster deal of its own.
Similar concerns also hovered over NVDA’s bid by Nvidia Corp. -3.86% to buy ARM Holdings Plc worth $40 billion. by Softbank Corp. As ARM develops and licenses chips used by over 500 companies, including some of Nvidia’s competitors, some regulators and critics fear ARM will lose its neutral industry stance. That deal still hasn’t been approved, and many on Wall Street believe it’s unlikely to get the green light.
For their part, Microsoft officials only mentioned regulatory approval as needed before closing in a timeframe of sometime in 2023, and the company did not answer questions on its brief conference call with analysts early Tuesday. A chorus of outside voices has already urged regulators to stand in the way of the deal, while players lament the possibility of losing access to their favorite titles.
“Once again, Microsoft, one of the biggest big tech companies, is shamelessly gobbling up a competitor to try to strengthen its market position,” Alex Harman, public citizen’s competition policy attorney, said in a statement to MarketWatch. “There is no way the Federal Trade Commission and the US Department of Justice should allow this merger. If Microsoft wants to bet on the metaverse, it should invest in new technology, not gobble up a competitor.”
However, many believe the deal will go through. Evercore ISI analyst Kirk Materne wrote on Tuesday that “the biggest question” surrounding the deal concerns the regulatory process, but also explained why he believes the deal will eventually stand, “even though it could be a long process.” “.
“While this deal will get a lot of attention from lawmakers given its size, gaming is a very competitive market that spans a number of paradigms, from mobile phones to PCs to consoles,” he wrote, adding that Microsoft has previously Deals has proven that it is possible to foster an open ecosystem for gamers and content, such as when it acquired Mojang Studios, creators of Minecraft, in 2014.
Competition concerns are far from the only worries in this deal, which involves the takeover of a company torn by its culture of sexual harassment by a company cognizant of its own past. In late November, Microsoft’s Xbox chief Phil Spencer said the company was “evaluating all aspects of its relationship with Activision Blizzard” after the Wall Street Journal reported that CEO Bobby Kotick had known of wrongdoing for years. but Microsoft recently launched its own investigation into sexual harassment policies after embarrassing reports about founder Bill Gates.
If the software giant passes the antitrust test, which is far from guaranteed, then it would be allowed to combine Activision’s “frat boy” culture with its own dodgy work environment. It seems an expensive gamble that Microsoft will be able to withstand the regulatory heat it has so far happily avoided going all out for the right to spend billions on a potentially toxic asset.
MarketWatch Editor Jon Swartz contributed to this article.