Microsoft’s $69 billion acquisition of Activision is drawing increased scrutiny from regulators, and some insiders at the game studio behind “Call of Duty” are concerned that the Xbox maker could effectively derail the deal, according to The Washington Post.

The proposed deal, in which Microsoft would buy out Activision for $95 per share, is being reviewed by antitrust authorities in the United States, the United Kingdom, and the European Union.

When the buyout was announced in January, Activision shares soared above $82, but have since fallen to below $73 as of Thursday, indicating growing investor skepticism about the deal’s viability.

According to some insiders and analysts, Microsoft, which has had a better relationship with regulators in recent years than competitors like Meta and Google, did not expect this level of scrutiny from authorities. According to sources close to the situation, the companies are at odds behind the scenes, despite Activision and Microsoft publicly putting on brave faces and insisting the deal will go through.

The promises — or lack thereof — that Microsoft is making to antitrust regulators and gaming rivals like Sony, which has vocally opposed the deal, are at issue.

Microsoft’s gaming CEO, Phil Spencer, has stated publicly that the company intends to continue releasing Activision’s popular “Call of Duty” series on PlayStation, as well as possibly bringing it to other consoles such as the Nintendo Switch.
However, according to Reuters, Microsoft has declined to offer any legal remedies to EU regulators ahead of an expected full-scale investigation on Nov. 8. Microsoft could have offered the EU so-called behavioral remedies, such as a formal promise to keep “Call of Duty” on PlayStation, but it chose not to. The company could still do so later, during a full-scale investigation.

Activision, led by Bobby Kotick, would prefer that Microsoft take a more accommodating stance with regulators now, because the game maker’s shareholders will be paid out regardless of whether Microsoft makes concessions, according to Activision insiders and analysts.

“If you’re Activision, you want Microsoft to give everything away forever,” a hedge fund analyst following the deal told The Washington Post. “However, that obviously ruins the deal’s economics.”
Despite Microsoft’s statements about keeping “Call of Duty” available on PlayStation, some analysts and critics argue that the option of keeping Activision games exclusively on Xbox is a large part of the deal’s appeal for Microsoft. While making public assurances is one thing, being legally obligated to abandon exclusives, according to sources, could be a deal breaker.

According to Wedbush Securities managing director Dan Ives, “Microsoft’s decision to buy Activision is all about exclusivity.” “If relinquishing exclusivity is one of the required concessions, Microsoft will have to think long and hard about whether this is still the right deal.”

“Microsoft isn’t buying this asset so that other companies can use Activision games as much,” Ives added. “It all boils down to the concessions.”

“Microsoft cannot be forced to accept draconian conditions,” said MoffettNathanson research analyst Clay Griffin.

If the European Commission, the UK’s Competition and Markets Authority, or the US Federal Trade Commission reject the deal, Microsoft will be forced to pay Activision a $3 billion break-up fee — a pittance for the $1.7 trillion tech behemoth.
A spokesman for Activision told The Washington Post, “We’re very grateful for our close working relationship with Microsoft.” We are confident in the transaction and its progress, and we know Microsoft is working hard to complete it. Any contrary suggestion is false.”

“From the moment this acquisition was announced, we’ve worked urgently to show we’re serious about taking the steps needed to earn approval – including making proactive commitments about how we’ll run our business with gamers and developers at the center,” a Microsoft spokesman told The Washington Post. The process has progressed as expected, and the deal is still expected to close on time.”

Nonetheless, Microsoft is legally required to use its “best efforts” to complete the transaction — and Activision may sue Microsoft if it believes Satya Nadella’s company purposefully blew up the buyout.

While Activision’s most recent “Call of Duty” game has so far been the best-selling game in franchise history, the deal falling apart could still pose a financial threat to the company, according to Barron’s.

Before the Microsoft deal was announced in January, Activision shares were trading about 10% lower than their current price — and the company was reeling from a wide-ranging alleged sexual misconduct scandal.
Meanwhile, Microsoft shares have fallen more than 35% in 2022 as inflation and interest rates have risen, while the tech-heavy Nasdaq Composite Index has fallen by roughly the same amount.

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