Microsoft bets on “Nice Guy” strategy to close Activision Megadeal

Earlier this month, Microsoft Chairman Brad Smith met with Federal Trade Commission Chairwoman Lina Khan to seek regulatory approval for Microsoft’s $69 billion acquisition of video game company Activision Blizzard. .

Mr Smith’s gamble – which secured the bid to keep Activision’s hit game Call of Duty widely available to address competitive concerns – failed. A day after they met, Ms Khan’s agency attempted legal action to prevent the successful deal.

But in an interview this week, Mr Smith was optimistic. “She didn’t accept my offer, but when I said to give peace a chance, she smiled at least a little,” he said of Ms Khan. “So whenever someone can end a meeting with even a little smile, there’s always a little hope that we can sit down together in the future.”

Mr. Smith’s peace comments indicate how Microsoft intends to approach the next phase of its deal for Activision. Far from giving up on the acquisition, he said, the company intends to bet that its gentlemanly strategy might still work.

In one plan, Microsoft hopes to win over regulators in Europe, people familiar with the approach said. European approval of Activision’s deal could force U.S. officials to reach a settlement that allows the acquisition to go ahead or a faster, more favorable court to hear the case, said the sources.

Microsoft plans to file its response to the FTC lawsuit on Thursday, company officials said. In its response, the company plans to argue that the deal would give players more options at lower prices, they said.

The FTC said the deal should be stopped because it would harm consumers. He said Microsoft, which makes the Xbox console, could use Call of Duty and other popular Activision titles to attract gamers from rivals, especially Sony, which makes the PlayStation console.

Microsoft’s seemingly conciliatory approach is part of an almost complete cultural transformation of the company since the 1990s, when it was known as the “evil empire” due to its heavy-handed tactics to block competitors. . But under Satya Nadella, who became chief executive in 2014, and Mr. Smith, who is also Microsoft’s top lawyer, the company has bent over backwards in recent years to show it’s awe-inspiring.

Passing Activision’s deal has implications for more than Microsoft. The FTC lawsuit is a milestone in a new era of government scrutiny of the biggest tech companies. Ms Khan has implemented an aggressive scheme of trustbusting the case, which legal experts say could be difficult to win. If Microsoft can’t get the deal considered, other tech giants will be less likely to be able to force a mega deal.

“They’re going to fight it,” said Sid Parakh, portfolio manager at Becker Capital, which invests in Microsoft. “It’s a little more above and beyond this deal. This is also a statement to the FTC”

With Microsoft sitting on over $100 billion to spend, he added, “they don’t want to back down once in a while, see every acquisition rolled back.”

The Activision acquisition must be completed by mid-July or Microsoft will have to pay up to $3 billion in severance pay. Many hurdles remain, including approval from other global regulators, notably in Britain and the European Union. If Microsoft can reach a formal settlement with them, it would leave the FTC at a critical time.

The FTC sued Microsoft in administrative court, which does not have the power to prevent the deal from closing while the case is pending. If other regulators approve the deal, the FTC would have to decide whether to file an injunction against the acquisition in federal court to stop it. The injunction process could move quickly, potentially handing Microsoft a quick legal victory.

“There is no sensible and legitimate reason to prevent our transaction from closing,” Activision Chief Executive Bobby Kotick said in a statement Wednesday. “We believe we will prevail on the merits of the case.”

The FTC declined to comment on Microsoft’s strategy or Mr. Smith’s conversation with Ms. Khan. Holly Vedova, director of the FTC’s Competition Bureau, said the agency is always willing to consider proposals from companies seeking to resolve antitrust issues.

Microsoft has told regulators it will make Activision’s Call of Duty widely available to reduce competition concerns. Credit…Allison Dinner/Associated Press

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