Can Microsoft buy Activision? Here’s what can kill the deal

On an unassuming Tuesday after a holiday, Microsoft dropped a bombshell. And yes, this situation is called a bomb. Microsoft has announced plans to buy Activision Blizzard in cash for $68.7 billion, the largest cash acquisition ever.

It’s always – period, not just for Microsoft, the gaming industry, or even tech companies as a whole. While everyone is still digesting the news, a question has arisen: will the deal actually close?

We have a recent historical context. There will be a lot of bumps over the next few years, and while Microsoft and Activision Blizzard’s deal may eventually close, the companies have a long way to go to get there.

Will Microsoft be able to buy Activision Blizzard?

We don’t know at the moment. There’s no history of deals like this for either Microsoft or Activision Blizzard, and it’s the biggest purchase Microsoft has ever made. We can speculate, but the reality is that we won’t know if the acquisition will go through until the final documents are signed.

Right now, there’s a similar deal in limbo: Nvidia’s $40 billion purchase of chipmaker ARM. In the tech industry at least, it’s the second-biggest acquisition of the 2020s so far, second only to Microsoft’s deal with Activision Blizzard.

The Nvidia deal has been passed around to regulators around the world for two years now, finally culminating in December 2021 when the Federal Trade Commission (FTC) sued Nvidia. Now analysts predict the deal is dead.

Nvidia’s deal is worth $40 billion, while Microsoft’s acquisition is worth $68.7 billion. So, case closed, right? Unfortunately, there is more to the story than that.

For Nvidia and Arm, there is a compelling argument that the deal could stifle competition and further consolidate the already tight chipmaking market. In the world of game development, even independent publishers like Devolver Digital have built businesses worth a billion dollars or more. Competition is always flourishing.

The argument for Nvidia and Arm does not apply to Microsoft and Activision Blizzard. Unlike Nvidia, Microsoft does not compete with Activision Blizzard customers. In games, at least, the case is verified.

But the deal is not limited to games. Microsoft has made it clear that it’s also hitting mobile and cloud, and the company said that he “provides[s] building blocks for the metaverse.

Not to mention that it is an unprecedented acquisition. Reuters reports it’s the biggest all-cash acquisition ever, not just in gaming or technology, and Aptus Capital Advisors analyst David Wagner said it “will get a lot of attention from a regulatory point of view.

Appearances are the problem. In the months leading up to Microsoft’s announcement, Activision Blizzard faced one of the toughest reviews a company has ever seen, and with the announcement of a landmark deal, that won’t change. not anytime soon.

The public eye

In July 2021, the State of California sued Activision Blizzard over allegations of sexual harassment. In the months since, Activision Blizzard has become a touchstone for the broader issues of discrimination and sexual harassment in the gaming industry, with lawsuits, strikes and calls for unionization garnering attention. public.

Details of Activision Blizzard’s issues over the past six months aren’t relevant to the deal, but public scrutiny is. Microsoft’s $7 billion acquisition of Bethesda sparked cries of monopoly; this nearly $70 billion deal already does the same thing.

It doesn’t help that Activision Blizzard has become a household name over the past six months. Many of the most important acquisitions take place in obscurity, far from public scrutiny or knowledge. BHP Group bought its UK-based trading group last year for around $86 billion. Who is BHP Group? That’s kind of the point.

The size of the deal is significant, but adding Activision Blizzard’s recent history on top of that is sure to draw a lot of attention. Even if the regulators accepted that the agreement was not respected, the public outcry would force someone’s hand.

It’s a question of when, not if. Although Microsoft has already announced its plans, we likely have a long road of probes and possibly lawsuits before Microsoft and Activision Blizzard shake hands for the last time. We might not get it until 2024 or later.

Microsoft’s biggest deal yet

The Activision Blizzard purchase is by far the biggest deal Microsoft has made. Beware, this is not the biggest contract for the Xbox division or for Microsoft games; it’s the most money Microsoft has spent on acquiring another company period.

The closest Microsoft ever got was when it bought LinkedIn in 2016 for $26.2 billion. You can dispel any notion that Microsoft isn’t investing in Xbox as a commercial venture – based on the Activision Blizzard deal, that may be the company’s primary focus.

Sounds like a good investment, though. Although the public deal focuses primarily on Overwatch, Call of Duty, and the other billion dollar franchises owned by Activision Blizzard, this also has implications for other areas of gaming.

Activision Blizzard owns King, for example, which makes Candy Crush. And Activision Blizzard owns Major League Gaming with exclusive partnerships with platforms like Disney and YouTube. It’s not just about adding Activision Blizzard titles to Game Pass.

This could be a problem for closing the deal. With competitive sports, the metaverse, and mobile games all included in the deal, regulators may raise antitrust concerns. Microsoft’s acquisition of LinkedIn has already brought a flurry of antitrust allegations. A deal worth three times as much is likely to do the same.

Taken in limbo

Microsoft says it expects the deal to close in 2023, but that ignores what will likely be many hurdles along the way. As to whether Microsoft can shut down, we don’t know at this time. Analysts appear optimistic, though cautious, given the scrutiny from regulators around the world.

Deals like this don’t normally happen in tech. They are usually reserved for big oil and energy companies, food processors that fill grocery store shelves, and chemical manufacturers that touch almost everything.

We don’t know if the deal with Microsoft and Activision Blizzard will close, but one thing is for sure: this won’t be the last we’ll hear about it.