Activision insiders fret $69B Microsoft merger could fall apart: sources

Microsoft’s $69 billion Activision buyout is facing heightened scrutiny from regulators — and some insiders at the game studio behind “Call of Duty” are worried that the Xbox maker could effectively blow up the deal, The Post has learned. 

Antitrust authorities in the US, United Kingdom and European Union are all reviewing the proposed deal, which would see Microsoft buy out Activision for $95 per share.

Activision shares rocketed above $82 when the buyout was announced in January but have since fallen to below $73 as of Thursday, indicating increasing investor skepticism about the deal going through.

Some insiders and analysts have said that Microsoft — which has enjoyed a better relationship with regulators in recent years compared to rivals like Meta and Google — likely did not expect this level of scrutiny from authorities. The increasing pressure has left the companies at odds behind the scenes, sources close to the situation said, even as Activision and Microsoft are publicly putting on brave faces and insisting the deal will go through.

At issue are the promises — or lack thereof — that Microsoft is offering antitrust regulators and gaming rivals like PlayStation maker Sony, which has loudly opposed the deal. 

Microsoft gaming CEO Phil Spencer has publicly said that the company plans to continue releasing Activision’s popular “Call of Duty” series on PlayStation, as well as potentially bring it to other consoles such as the Nintendo Switch. 

But Microsoft has declined to offer EU regulators any legal remedies ahead of an expected full-scale probe that could kick off on Nov. 8, Reuters reported last week. Microsoft had the option of offering the EU so-called behavioral remedies, such as a formal promise to keep “Call of Duty on PlayStation,” but declined to do so. The company could still do so later on during a full-scale probe.

Bobby Kotick-led Activision would prefer that Microsoft take a more accommodating stance with regulators now, since the game-maker’s shareholders will get paid out regardless of whether Microsoft makes concessions, Activision insiders and analysts said. 

“If you’re Activision, you want Microsoft to offer everything forever for free,” a hedge fund analyst closely following the deal told The Post. “But that obviously destroys the economics of the deal.” 

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, despite the company’s statements about keeping “Call of Duty” available on PlayStation. While making public assurances is one thing, being legally bound to abandon exclusives could be a dealbreaker, sources said.

“Microsoft’s decision to buy Activision is all about exclusivity,” Wedbush Securities managing director Dan Ives told The Post. “If giving up exclusivity is one of the required concessions, Microsoft is going to have to think long and hard if this is still the right deal.” 

“Microsoft isn’t buying this asset so other companies can use Activision games to the same extent,” Ives added. “It all comes down to what the concessions are.” 

MoffettNathanson research analyst Clay Griffin likewise said: “Microsoft can’t be forced to accept draconian conditions.” 

If the European Commission, UK’s Competition and Markets Authority or American Federal Trade Commission squash the deal, Microsoft will have to pay Activision a $3 billion break-up fee — a relative drop in the bucket for the $1.7 trillion tech giant. 

In a statement to The Post a spokesman for Activision said “We’re very appreciative of our close working relationship with Microsoft. We’re confident in the deal and its progress, and we know Microsoft is working diligently to get it done. Any suggestion to the contrary is false.”

Microsoft declined to comment.

Still, Microsoft is legally obligated to use its “best efforts” to close the deal — and Activision could sue the Xbox maker if it believes Satya Nadella-led company purposefully blew up the buyout. 

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

Activision shares were trading about 10% lower than their current price before the Microsoft deal was announced in January — and the company was reeling from a wide-ranging alleged sexual misconduct scandal. 

Meanwhile, Microsoft shares have tumbled more than 35% so far in 2022 amid surging inflation and interest rates, while the tech-heavy Nasdaq Composite Index has also fallen by roughly the same amount.