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Shares of Activision Blizzard Inc. surged Tuesday after a federal judge denied the Federal Trade Commission’s injunction blocking Microsoft Corp.’s acquisition of the videogame publisher, but U.K. concerns must be addressed before the deal closes.
In a Tuesday opinion, U.S. District Court Judge Jacqueline Scott Corley said the FTC did not show “this particular vertical merger in this specific industry may substantially lessen competition,” and Activision Blizzard
ATVI,
shares surged more than 10%, on pace for their largest one-day percentage gain since Jan. 18, 2022, when shares surged 25.9% after the deal was first announced.
“To the contrary, the record evidence points to more consumer access to Call of Duty and other Activision content,” the judge wrote.
Meanwhile, Microsoft
MSFT,
shares declined 0.2%, the S&P 500 index
SPX,
rose 0.3%, the tech-heavy Nasdaq Composite Index
COMP,
rose 0.1% and the Dow Jones Industrial Average
DJIA,
of which Microsoft is a component, gained 0.6%.
After the court decision, Microsoft’s President and Vice Chair Brad Smith said the company will now address concerns brought up by the U.K.’s Competition and Markets Authority.
While EU regulators approved the deal in mid-May, U.K. regulators said in April they would prohibit the deal on anticompetitive concerns. The prohibition was much like the FTC’s, arguing that Microsoft, with its Xbox gaming console, could withhold hit Activision Blizzard videogame franchises such as “Call of Duty” and “Overwatch” from competing console platforms like Sony Group Corp.’s
SONY,
PlayStation and Nintendo Co.’s
7974,
Switch.
Read: FTC files injunction to block Microsoft acquisition of Activision Blizzard
In a Tuesday note, TD Cowen analyst Doug Creutz, who has a market perform rating on Activision Blizzard, said Corley’s ruling was a “double whammy” that made the deal closing “much more likely,” as in the 80% range, with the only doubts being whether the FTC appeals, or the CMA issues do not get resolved in time.” The analyst added that the bar for the FTC overturning the decision was “very high.”
“One obvious way to read this is that with the FTC’s challenge having apparently failed, the CMA is now feeling heavy political pressure not to be the lone holdout against the deal, and is looking for a graceful exit where it can still declare some sort of victory (further concessions from Microsoft, even if they are modest in nature),” Creutz said.
When hearings began in late June to determine whether the FTC had a case, Microsoft had stated the deal hinged upon the judge’s decision. Microsoft is under a July 18 deadline to close the $69 billion deal, or be on the hook for a $3 billion breakup charge.
“Microsoft has committed in writing, in public, and in court to keep Call of Duty on PlayStation for 10 years on parity with Xbox,” Corley wrote in her Tuesday decision. “It made an agreement with Nintendo to bring Call of Duty to Switch. And it entered several agreements to for the first time bring Activision’s content to several cloud gaming services.”
Back in February, Microsoft signed a 10-year deal to bring Xbox and other properties to Nvidia Corp.’s
NVDA,
cloud gamers and to Nintendo gamers in a push to satisfy antitrust regulators.
Read: Microsoft teams up with Nvidia and Nintendo in 10-year deal to stream Xbox games
“Our merger will benefit consumers and workers. It will enable competition rather than allow entrenched market leaders to continue to dominate our rapidly growing industry,” said Activision Blizzard CEO Bobby Kotick in a statement following the ruling.
Shares of Electronic Arts Inc.
EA,
also rallied, trading up 5% at last check. Uncertainty over whether the Microsoft deal would close has been an overhang over whether EA is a takeover target. Back in April, one analyst downgraded EA because regulatory opposition to Microsoft’s acquisition was taking away the “takeout premium” in its shares.
