Microsoft moves closer to completing $69 billion

A U.S. appeals court on Friday dismissed federal regulators' attempt to block Microsoft's $68.7 billion acquisition of video game maker Activision Blizzard. This decision clears the way for the completion of the largest tech acquisition in history, following a legal battle over concerns about competition.

In a concise ruling, a three-judge panel from the 9th U.S. Circuit Court of Appeals determined that there were no grounds to issue an order that would have hindered Microsoft from finalizing its nearly 18-month-old deal to acquire the renowned video game developer responsible for hit titles like Call of Duty.

Microsoft, headquartered in Redmond, Washington, now faces a potential $3 billion termination fee if it fails to complete the deal by Tuesday.

Microsoft President Brad Smith expressed optimism, stating, "This brings us one step closer to the finish line in this global marathon of regulatory reviews."

The appeal, filed by the U.S. Federal Trade Commission, represented a last-ditch effort by antitrust enforcers to stop the merger following an earlier ruling by a federal judge, which rejected the agency's attempt to block it. The FTC had sought an injunction to prevent Microsoft from finalizing the deal as early as this weekend.

The FTC declined to provide a comment regarding the court ruling.

In a previous ruling on Tuesday, U.S. District Judge Jacqueline Scott Corley stated that the FTC failed to demonstrate substantial harm resulting from the deal. Judge Corley highlighted Microsoft's commitments and economic incentive to ensure that Call of Duty remains accessible on competing platforms such as Sony's PlayStation and Nintendo's Switch, in addition to its own Xbox gaming system.

In its appeal, the FTC argued that Judge Corley made "fundamental errors."

"The case goes beyond a single video game and the hardware needed to play it," stated the FTC. "It concerns the future of the gaming industry, including how future gamers will play and whether the emerging subscription and cloud markets will become concentrated, closed ecosystems or evolve into open, competitive environments."

This case has posed a significant challenge for the FTC under the leadership of Chairperson Lina Khan, who was appointed by President Joe Biden in 2021 to oversee increased scrutiny of the tech industry's business practices. Traditional legal doctrine has generally favoured mergers between companies that do not directly compete.

Chairperson Khan faced criticism from Republicans during a House of Representatives hearing on Thursday regarding the agency's enforcement record. One lawmaker from California questioned whether the FTC deliberately engaged in losing battles against mergers to pressure Congress into updating antitrust laws.

Khan responded, "Absolutely not," while acknowledging that "unfortunately, things don't always go our way."

The FTC's appeal argued that Judge Corley, a Biden nominee, applied an incorrect legal standard by essentially requiring the agency's attorneys to present their entire case immediately, instead of during the trial scheduled to begin in August before the FTC's in-house judge.

However, it was the FTC itself that requested an expedited hearing from Judge Corley to block Microsoft and Activision Blizzard from swiftly closing the deal. The agency's argument was that if the deal were to close immediately, it would be more challenging to undo the merger if it were later found to violate antitrust laws.

In response to the appeal, Microsoft countered that it could divest from Activision Blizzard if necessary. The company has consistently defended the deal as beneficial for the gaming industry.

Despite the recent court ruling, the proposed merger still faces an obstacle in the United Kingdom, although it appears to be closer to overcoming it.

On Friday, British antitrust regulators extended their deadline to issue a final order on the merger, allowing them to consider Microsoft's comprehensive submission outlining its case in detail. The Competition and Markets Authority initially rejected the deal due to concerns about potential competition restrictions in the rapidly growing cloud gaming market.

However, the U.K. watchdog seems to have softened its stance following Judge Corley's decision to reject the efforts of U.S. regulators to block the deal.

The authority has extended the original deadline by six weeks, now set for August 29, to thoroughly review Microsoft's response, which presents "material changes in circumstance and special reasons" why regulators should not reject the deal.