Microsoft Corp. and Activision Blizzard Inc. are having their day in court, and a federal judge must decide whether to uphold the Federal Trade Commission's injunction against Microsoft's acquisition of the videogame publisher.
"This will decide" the fate of the deal, Microsoft told U.S. District Judge Jacqueline Scott Corley during the hearing Thursday.
At 8:30 a.m. Pacific time, Corley convened an evidentiary hearing in San Francisco in the case, FTC v. Microsoft et al. Hearings are also scheduled for Friday and for June 27 and 28.
Earlier this month, the FTC filed filed a temporary restraining order and preliminary injunction blocking Microsoft's $69 billion agreement to buy Activision Blizzard The companies have complained that the FTC's action requires more review than would be allowed under the terms of the deal.
In its opening statement, Microsoft noted that the hearing will decide whether the $69 billion deal will go through or not. Under the agreement, the acquisition needs to close by July 18, or else Microsoft is on the hook for a $3 billion breakup fee. Microsoft said the FTC had "no basis to enjoin this transaction."
At the beginning of the evidentiary hearing, the FTC laid out its argument against the deal: that Microsoft, which owns the Xbox gaming console and Xbox Game Pass gaming service, would acquire control over both the hardware and the distribution network for all of Activision Blizzard's intellectual property, giving it an unfair advantage in the growing cloud-gaming space.
The videogame publisher runs such franchises as Activision's "Call of Duty" and Blizzard's "World of Warcraft," "Overwatch" and "Diablo," and an acquisition by Microsoft would give the tech giant the ability to restrict access to those titles by non-Xbox services or devices like Sony Group Corp.'s PlayStation and Nintendo Co.'s Switch, which is a lesser-powered console compared with the Xbox and PlayStation. For instance, "Call of Duty" is not available on Switch in any form.
When Microsoft made the offer for Activision in January 2022, a little more than a week after Take-Two Interactive Software Inc. announced its $12.7 billion acquisition of Zynga, it kicked off an M&A frenzy, leading investors to wonder where the next big deal would be.
In April of this year, Microsoft faced a block of the $69 billion deal from U.K. regulators, who, like the FTC, argue that the deal would give Microsoft an unfair advantage in the growing cloud-gaming-services market.
In February, Microsoft started cutting 10-year deals with Nvidia Corp. and its gaming service GeForce Now and with Nintendo to stream Xbox games in an apparent bid to head off antitrust concerns.
During the hearing, the FTC dismissed those deals, calling them "unheard of" and not binding.
Microsoft shares are up 41% year to date, while Activision Blizzard shares are up nearly 7%, the iShares Expanded Tech-Software Sector exchange-traded fund is up 32%, the Dow Jones Industrial Average is up 2%, the S&P 500 has gained 14% and the tech-heavy Nasdaq Composite Index has gone up 30%.