Is Microsoft’s Acquisition of Activision in Limbo?: A Closer Look

Is this acquisition in limbo?

Microsoft first announced its intention to purchase Activision Blizzard, a leading gaming company, on the 18th January 2022. Since the $68.7 billion deal has been announced, it has faced a number of challenges. What is the true value of this transaction today? 

Regulatory approval

Customarily, the transaction was announced subject to regulatory review. The United States’ Federal Trade Commission (FTC) is currently assessing the acquisition, with reference to a wide range of factors. 

Unsurprisingly, Microsoft’s existing market dominance is being tested against Activision’s leading position in the gaming world. A key concern is the exclusivity that Microsoft could impose on Activision’s games, restricting them to its console – the Xbox. In response, Phil Spencer, CEO of Microsoft Gaming, has declared that the company will honour “all existing agreements.” 

Beyond competition concerns, Activision’s internal practices are being questioned. Issues over workplace misconduct emerged in mid-2021 when lawsuits alleging sex discrimination and sexual harassment were filed in California. The company has since committed to “integrity and inclusivity.” This included J Allen Brack, the now-former president of Blizzard Entertainment, stepping down. The management shake-up has not been satisfactory. In March 2022, another sexual harassment, favouritism, and sexual battery lawsuit was filed against Activision. Subsequently, the value of the company has fallen by nearly 30 per cent. 

US Senators such as Elizabeth Warren and Bernie Sanders, have called on the FTC to take Activision’s working conditions into account, as part of its investigation. There are fears that the acquisition would brush the malpractice under the carpet. The FTC’s report is likely to respond to this plea and assess the effect of the deal on the labour market. Additional considerations are likely to include an examination of the consumer data that both companies hold. 

In pursuit of securing better employment rights, workers at Raven Software, a subsidiarity of Activision, formed the Game Workers Alliance, in January 2022. This constitutes the first union at a major US gaming company which Activision refused to voluntarily recognise. Instead, the union was certified through an election run by the National Labor Relations Board. This development may encourage further unionisation at Activision and eventually challenge Microsoft’s labour agreements. 

Microsoft has not commented on the allegations but said that it would support any unionisation outcomes. 

Further issues

Alongside regulatory approval, a probe has been started by US investigators into allegations of insider trading. The meetings of Activision’s CEO, Bobby Kotick, are looked into to establish whether any non-publically available information was released and led to subsequent purchases of options in the company. Barry Diller, one of the purchasers, dismissed the allegations as a “simple coincidence.” The transactions that are being questioned were finalised four days before the Microsoft deal was made public. 

The response of competitors

In the meantime, prominent players within the gaming market have tried to retain a competitive edge against this year’s biggest corporate acquisition. Sony has pledged $1 billion to Epic Games to support its expansion into the “Metaverse,” obtaining a 4.9 per cent stake. Sony may be left particularly vulnerable as its PlayStation relies on many of the games developed by Activision. 

Conclusion

While the FTC continues its investigation, Activision’s shareholders are set to vote on the deal on the 28th April 2022. The concerns outlined above may question the high value of Microsoft’s takeover. It is yet to be seen what effect the developments have on the deal and Microsoft’s efforts at entering the “Metaverse.”

By Zuzanna Potocka