Microsoft, the aborted takeover of the century?

The news changed social networks and financial markets in January 2022. A year later, the massive acquisition project that would make Microsoft the No. 1 video game publisher is being seriously questioned. Blame the American competition authority, which fears that Activision-Blizzard, a target company of Bill Gates’ firm, has too much control over its most popular licenses.

A few weeks ago, the Federal Trade Commission (FTC) [NDLR : agence gouvernementale américaine chargée de veiller à l’application du droit de la consommation et de la concurrence]filed a lawsuit to prevent Microsoft Corp. (NASDAQ:MSFT) get rid of Activision Blizzard Inc. (NASDAQ: ATVI).

The legal action puts the tech giant squarely in the spotlight and puts the fate of struggling video game developer Activision in doubt.

The argument behind the FTC’s action is that the merger would threaten competition in the industry. ” The proposed acquisition, if successful, could substantially lessen competition or tend to create a monopoly., the FTC said in the complaint, citing that the transaction would also give Microsoft more control over access to Activision games, as well as owners of Xbox consoles. And which games, since Activision publishes some of the most popular licenses on the market Warcraft and call of duty.

Activision’s catalog includes extremely profitable franchises. In February 2022, it announced $650 million in sales of Call of Duty Black Ops, the new version of its flagship game. Image credit:

However, when Microsoft announced the merger, it repeatedly stated that the company would not participate in the actions related to the FTC. But these statements were not enough to convince the FTC that Microsoft would act fairly.

Another part of that complaint, which Microsoft disputes, accuses Microsoft of failing to comply with a similar commitment it made to European authorities in the past.

So the big question for investors was whether Microsoft would throw in the towel or be patient.

About 10 days ago, Microsoft said it intended to challenge the FTC’s claim…

The giant remains in his position

Microsoft’s stock price rose on December 21 as the multinational company prepared for a legal battle with the FTC.

Even if some investors have voiced their desire for Microsoft to abandon the transaction, the giant seems to have some arguments in its favor in this case.

For starters, over the past few months, Microsoft has been making its presence felt in all kinds of gaming and financial media.

The main argument in its defense is this: the merger will not threaten competition within the video game sector, since Microsoft already lags behind its competitors in terms of sales of game consoles. Moreover, Microsoft is not as present in the mobile games sector as its competitors.

Bill Gates’ firm even predicts that the entire industry will become more competitive in the future with the advent of technologies such as augmented reality and virtual reality. cloudsand so on.

Microsoft will likely focus its defense on these key points in addition to the specific type of merger the giant is considering, namely a vertical merger. The company plans to acquire Activision as part of its supply chain, not as a direct competitor.

Essentially, this vertical integration combines Microsoft’s software, device and clouds PC, to Activision’s global video game catalog.

The FTC is cracking down on vertical mergers

You should know that the FTC has already cracked down on vertical mergers in the past. It has failed many times and for good reason…

In fact, opposing vertical mergers is quite complicated. Alleging potential future damages is difficult because litigation requires complex assumptions about how market dynamics may play out in the future, and those assumptions may never materialize.

However, the FTC, beset by past failures, may take a fresh approach to this case if it wants to make this case a model.

In the meantime, Microsoft is confident that it can continue this operation.

Microsoft president and vice president Brad Smith said in a statement about the FTC’s lawsuit. It was fundamentally good for gamers, consumers, game developers, and the competition.

It will be interesting to watch if this case sets a precedent for how the FTC will deal with vertical mergers in the future.

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