What is the Penalty for Microsoft Activision?

The short answer is: it depends on the scenario. The original agreement outlined a reverse termination fee that Microsoft would be obligated to pay Activision Blizzard under specific circumstances if the deal fell through. This fee was structured to increase over time.

• If the deal was terminated after August 29, 2023, the fee was set at $3.5 billion.
• If the deal was terminated after September 15, 2023, the fee would have increased to $4.5 billion.

However, as the deal was ultimately completed on October 13, 2023, these termination fees became irrelevant. The saga of the Microsoft-Activision Blizzard acquisition was complex, fraught with regulatory hurdles, and generated significant debate within the gaming industry and beyond.

Understanding the Context of the Potential Penalty

The potential penalty, or termination fee, was a crucial element of the merger agreement. These fees are common in large corporate acquisitions to protect the seller (in this case, Activision Blizzard) from a buyer (Microsoft) backing out of the deal for reasons other than those explicitly outlined in the agreement. The size of the fee reflects the magnitude of the deal and the potential disruption caused to the seller if the acquisition fails.

Several factors contributed to the uncertainty surrounding the acquisition, making the termination fee a significant point of discussion:

• Regulatory Scrutiny: The acquisition faced intense scrutiny from regulatory bodies worldwide, including the US Federal Trade Commission (FTC) and the UK’s Competition and Markets Authority (CMA). These agencies raised concerns about potential antitrust violations and the impact on competition in the gaming market, particularly in areas like cloud gaming.

• Competition Concerns: Regulators feared that Microsoft could leverage its ownership of Activision Blizzard’s popular game franchises, such as Call of Duty, to unfairly favor its Xbox platform and disadvantage competitors like Sony (PlayStation) and Nintendo. The prospect of exclusivity deals was a major sticking point.

• Cloud Gaming Market: The emerging cloud gaming market presented another area of concern. Regulators worried that Microsoft could dominate this sector by making Activision Blizzard’s games exclusive to its cloud gaming service, Xbox Cloud Gaming, stifling competition and innovation.

• Legal Challenges: The FTC even attempted to block the acquisition through legal action, further increasing the uncertainty surrounding the deal’s completion.

Ultimately, Microsoft successfully navigated these challenges and secured regulatory approval, allowing the acquisition to proceed. However, the threat of a hefty termination fee served as a powerful incentive for Microsoft to overcome these obstacles and finalize the deal. The debate around the acquisition’s potential impact continues within the industry, with organizations such as the Games Learning Society exploring the educational and societal effects of such large-scale mergers. Learn more at GamesLearningSociety.org.

FAQs about the Microsoft Activision Deal

Here are 15 frequently asked questions to provide further insights into the complexities surrounding the Microsoft Activision acquisition:

1. What was the original value of the Microsoft Activision deal?

The deal was initially valued at $68.7 billion in cash, with Microsoft agreeing to pay $95 per share for Activision Blizzard stock. However, some reports estimated the total cost to be closer to $75 billion when factoring in Activision Blizzard’s net cash.

2. Why did the UK’s CMA initially block the acquisition?

The CMA blocked the deal over concerns that Microsoft could substantially lessen competition in the cloud gaming market. They feared Microsoft could make Activision Blizzard’s games exclusive to its own cloud gaming platforms, hurting competitors.

3. What were the FTC’s concerns regarding the acquisition?

The FTC argued that the acquisition would allow Microsoft to suppress competition in the gaming console and cloud gaming markets. They believed Microsoft could make Activision Blizzard’s games exclusive to its Xbox ecosystem, disadvantaging rivals like Sony and Nintendo.

4. Did a judge rule on the FTC’s attempt to block the deal?

Yes, a federal judge ruled against the FTC, stating that the agency had not demonstrated a likelihood of success in proving that the merger would violate antitrust laws.

5. What did Microsoft have to do to finally get the deal approved?

Microsoft addressed the CMA’s concerns by restructuring the deal. This involved selling the cloud streaming rights for Activision Blizzard games in Europe to Ubisoft, ensuring that Microsoft wouldn’t have complete control over the cloud gaming market.

6. What are the potential benefits of the acquisition for Microsoft?

Microsoft gains access to Activision Blizzard’s vast library of popular game franchises, including Call of Duty, World of Warcraft, and Candy Crush. This strengthens Microsoft’s position in the gaming market and provides content for its Xbox Game Pass subscription service.

7. What are the potential downsides of the acquisition for the gaming industry?

Some worry that Microsoft could use its ownership of Activision Blizzard’s franchises to limit competition and raise prices. There are also concerns about the potential impact on game development and innovation.

8. Will Call of Duty become exclusive to Xbox?

Microsoft has stated that it intends to keep Call of Duty available on PlayStation, but there are still concerns about potential preferential treatment or exclusive content for the Xbox platform.

9. How does the acquisition affect Activision Blizzard employees?

The long-term impact on Activision Blizzard employees is still uncertain. While Microsoft has stated its commitment to maintaining Activision Blizzard’s existing studios and teams, there are always potential for restructuring and job losses following a major acquisition.

10. What is the impact of the deal on the cloud gaming market?

With the restructured deal addressing the CMA’s concerns, the acquisition is expected to have a more balanced impact on the cloud gaming market. Ubisoft’s involvement should ensure that Microsoft doesn’t have a complete monopoly on Activision Blizzard’s games in the cloud.

11. Is the Microsoft Activision deal an all-cash transaction?

Yes, the Microsoft Activision deal was an all-cash transaction, with Microsoft paying $95 per share for Activision Blizzard stock.

12. What happens if you violate Microsoft’s terms of service?

Violating Microsoft’s terms of service can result in consequences ranging from content removal to account suspension or termination.

13. Why did the FTC withdraw and then revive its attempt to block the deal?

The FTC initially withdrew the matter from adjudication to explore potential settlement options. However, after Microsoft restructured the deal to address the CMA’s concerns, the FTC revived its legal challenge, arguing that the new deal still raised antitrust issues.

14. What does it mean for Activision Blizzard stock now that the deal is closed?

With the acquisition completed, Activision Blizzard stock is no longer traded publicly. Shareholders received $95 per share in cash from Microsoft.

15. What is a buy-out fee in the context of Microsoft licensing?

A buy-out fee is a one-time payment that allows a customer to convert their non-perpetual (temporary) software licenses to perpetual (permanent) licenses.

The Microsoft-Activision Blizzard acquisition marks a significant shift in the gaming landscape, promising to reshape the future of interactive entertainment. While the threat of a termination fee is now a closed chapter, the implications of this monumental deal will continue to unfold for years to come.