No matter how hard it tries, a company worth more than $2tn cannot position itself as the plucky underdog. Especially when it is able to write a $75bn cheque with ease.
On Wednesday, the UK’s Competition and Markets Authority declared that it would not approve Microsoft’s blockbuster acquisition of Activision Blizzard. Both companies make noises about a fight. But appeals are tough. And Microsoft still needs approvals in the US and Europe. Besides, neither side may need the other anymore.
Gaming has become a strategic area of interest for tech and media companies. Still, this acquisition was a curious one when announced in early 2022. The CMA has narrowed its focus on the deal’s impact on the nascent cloud and mobile gaming marketplace. The US’s Federal Trade Commission challenge examines the deal more broadly. But regulators everywhere have the same objection: that Microsoft’s control of Activision’s prized Call of Duty franchise could entrench the Seattle company’s place as a dominant distributor.
The good news for Microsoft is that if the deal is over it should have little effect on its profits. By coincidence, it reported strong first-quarter results late on Tuesday. Its corporate cloud computing business, Azure, continues to thrive. Cloud revenues were up 25 per cent in constant currency to a whopping $28.5bn with similar growth projected for this quarter.
Azure is powering AI chatbot ChatGPT. The company said that it now had more than 2,500 “Azure OpenAI” customers. Earlier this year, it invested several billion dollars in ChatGPT’s owner, OpenAI. Microsoft’s share price, though below its record high, has rallied a quarter this year.
Meanwhile, Activision has hit a record level of bookings. The prospect of a Microsoft deal helped it solve some internal management problems. Its standalone prospects seem brighter. Even if the deal survived competition reviews, Activision might seek a higher buyout price. If it settles for a break-up fee, it may be the rare selling company that prospers after a busted deal.
Microsoft shares rallied almost a tenth on Wednesday, equal to nearly $200bn in market capitalisation, largely due to its earnings. Shareholders prefer that Microsoft sticks to its multitrillion-dollar knitting and leaves gaming alone, regardless of the superficial attractions of consumer media.