The booming gaming industry may be flying too close to the sun: Microsoft’s whooping $70 billion bid to acquire game publisher Activision Blizzard has been thrown into doubt as the union faces antitrust scrutiny.
Microsoft and Activision helped kick off 2022 with the gaming industry’s largest deal yet – and Microsoft’s largest deal ever, if it actually closes. Gaming has been booming since 2020, and Microsoft is betting on it’s future as it seeks to add Activision’s 400 million monthly users – with such popular titles as Call of Duty and World of Warcraft – to its existing XBox and PC gaming empires. This deal arises as companies battle for control of the metaverse, which many see as a lucrative alternate reality where consumers will even purchase virtual real estate.
As the tech giant’s largest deal ever, this transaction shows that Microsoft is planning to vigorously compete with dominant players Sony and Tencent. It believes there is plenty of room for competition, writing in the press release, “[w]ith three billion people actively playing games today, and fueled by a new generation steeped in the joys of interactive entertainment, gaming is now the largest and fastest-growing form of entertainment.”
But regulators may not agree. The Biden Administration has repeatedly vowed more muscular antitrust scrutiny, blaming industry consolidation for feeding price increases. But while the Administration had focused its ire on tech giants Google’s parent Alphabet, Inc. and Meta Platform, Inc. (formerly “Facebook”), sights are now set on Microsoft. The same day that Microsoft and Activision announced the deal, the Federal Trade Commission and Department of Justice pledged to create new guidelines on mergers in the digital space.
While Microsoft argues that it remains the 3rd largest in the industry, some fear that the merged company may force Activision’s users to play only on XBox consoles rather than across platforms – with at least one retailer purportedly warning consumers about this potential change. Such a move would surely strengthen any antitrust case against the company. As the second most valuable company in the world, Microsoft has long battled antitrust challenges.
In a show of confidence, Microsoft included in the agreement and plan of merger a $3 billion breakup fee that it would owe Activision if regulators block the transaction. Investors appear concerned that regulators will block the union: over the course of last week, shares of Activision dropped steadily to 17% below Microsoft’s offer price.
According to Matterhorn’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly announced transactions, Activision was advised by law firm Skadden, Arps, Slate, Meagher & Flom LLP, and financial advisor Allen & Company. Microsoft was advised by law firms Simpson Thacher & Bartlett LLP, and financial advisor Goldman Sachs.