The $69B Activision buyout by Microsoft is under increased scrutiny. Some insiders at “Call of Duty”, a game studio that makes the Xbox, are concerned that the Xbox maker might renege on the deal.
The proposed deal would see Microsoft purchase Activision at $95 per share.
Activision shares soared to $82 after the announcement of the buyout in January, but they have fallen to $73 as of Thursday. This indicates increasing investor doubts about the deal.
Analysts and insiders have suggested that Microsoft, which has had a more positive relationship with regulators than rivals like Meta or Google in recent years, probably didn’t expect such intense scrutiny from authorities. Sources close to the situation say that the increasing pressure has put the companies at odds behind-the scenes. Even though Activision is publicly insisting that the deal will be approved, Microsoft and Meta have been putting on brave faces.
The issue is the promises (or lack thereof) that Microsoft offers antitrust regulators as well as gaming rivals such as Sony PlayStation, which has fiercely opposed the deal.
Phil Spencer, Microsoft’s gaming CEO, has stated publicly that Activision’s “Call of Duty” series will be released on PlayStation and could also be brought to other consoles like the Nintendo Switch.
Microsoft declined to offer EU regulators legal remedies in advance of the expected full-scale probe, Reuters reported last Wednesday. Microsoft could have offered the EU “behavioral remedies,” such as a promise to keep “Call of Duty” on PlayStation, but chose not to. However, the company could still do this during a full-scale investigation.
Activision’s Bobby Kotick-led Activision would prefer Microsoft to be more accommodating with regulators right now since the game-maker’s shareholders will get paid regardless of whether Microsoft makes concessions. Activision insiders said that.
A hedge fund analyst who closely followed the deal said to The Post that Activision wants Microsoft to give everything forever free. “But that clearly destroys the economics”
Analysts and critics believe that Microsoft’s option to keep Activision games exclusive to Xbox is an important part of the deal’s appeal, despite Microsoft’s claims about keeping “Call of Duty” available on PlayStation. Sources said that while making public statements is one thing it could be problematic to make exclusives available on Xbox.
According to Dan Ives, managing director of Wedbush Securities, “Microsoft’s decision not to buy Activision was all about exclusivity.” Microsoft will have to consider whether giving up exclusivity is a necessary concession.
Ives stated that Microsoft has not purchased this asset to allow other companies to use Activision games in the same way. It all boils down to the concessions.
Clay Griffin, MoffettNathanson analyst, said that Microsoft cannot be forced to accept draconian terms.
The European Commission, the UK’s Competition and Markets Authority, or the American Federal Trade Commission will not approve the deal. Activision will be required to pay Microsoft a $3 billion breakup fee. This is a small amount for the $1.7 trillion tech company.
Activision’s spokesperson said that they are grateful for their close working relationship with Microsoft. We are confident in the deal’s progress and know that Microsoft is diligently working to make it happen. “Any suggestion that the opposite is true is false.”
A Microsoft spokesperson stated that the company had worked hard to demonstrate its seriousness about gaining approval. This included making proactive commitments regarding how we will run our business with developers and gamers at the center. While the process is moving as planned, we still expect that the deal will close on time.
Activision could sue Microsoft if it believes Satya Nadella’s company deliberately blew up the deal.
Activision’s latest “Call of Duty”, which has been the most popular game in franchise history, Barron’s reported suggests that the deal could still be a financial risk to the company.
Activision shares traded at 10% below their current price in January, before the Microsoft deal was announced. This was while Activision was still reeling from a broad-ranging sexual misconduct scandal.
Microsoft shares have plummeted more than 35% in 2022, despite rising inflation and interest rates. The tech-heavy Nasdaq Composite index has fallen roughly the same.
