Federal court grants FTC's request to temporarily block Microsoft-Activision tie up

Microsoft’s (MSFT) planned acquisition of “Call of Duty” maker Activision Blizzard (ATVI) hit another snag on Tuesday as a federal district court judge in California granted the US Federal Trade Commission’s request to temporarily block the deal from closing.

Judge Edward Davila of California’s Northern District issued a temporary restraining order, which, for now, stops Microsoft and Activision from completing the proposed transaction and maintains the status quo.

The court, however, did not decide the FTC’s additional request for a preliminary injunction, which could further pause the transaction. A hearing on that request is set before a different judge on June 22 and 23.

The ruling stems from the FTC’s filing in federal court on Monday. The complaint asks the court to stop the tie up while the agency's administrative review of the transaction is pending.

The FTC filed a lawsuit objecting to the Activision Blizzard acquisition in December 2022, saying it would "enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business."

Whether the deal can move forward while the FTC’s review is pending will depend on the court’s decision on the agency’s preliminary injunction request. The court instructed that the deal may not close until the later of a date set by the court, or after midnight Pacific Time five days after the court rules on the matter.

“Accelerating the legal process in the U.S will ultimately bring more choice and competition to the gaming market. A temporary restraining order makes sense until we can receive a decision from the Court, which is moving swiftly," a spokesperson for Microsoft told Yahoo Finance.

Microsoft vice president Brad Smith said on Monday that the company welcomes the opportunity to present its case in a federal court.

"We believe accelerating the legal process in the US will ultimately bring more choice and competition to the market," he added.

A spokesperson for the FTC told Yahoo Finance on Monday that Microsoft and Activision Blizzard have represented in the past that they cannot close their deal due to antitrust reviews of the transaction in other jurisdictions, but had not provided assurances that they will maintain that position.

"In light of that, and public reporting that Microsoft and Activision Blizzard are considering closing their deal imminently, we have filed a request for a temporary restraining order to prevent them from closing while review continues.”

It's not just the US that's seeking to block the merger. The UK's Competition and Markets Authority has also objected to the acquisition on fears that it would give Microsoft too much power in the gaming space. The company is appealing that decision. Microsoft did win EU antitrust approval last month.

Acquiring Activision Blizzard would be a massive boon for Microsoft's gaming business. The video game giant counts the incredibly popular “Call of Duty” as one of its marquee franchises, which would drive billions in revenue toward Microsoft’s Xbox division. Last year’s “Call of Duty: Modern Warfare II” brought in $1 billion in its first 10 days on the market.

But it’s not just about “Call of Duty.” The deal would also give Microsoft the ability to offer Activision Blizzard’s various franchises via its Xbox Game Pass, a subscription service that allows gamers to download hundreds of games each month.

Game Pass’s top tier includes Microsoft’s cloud gaming service, which allows you to play games on your console as well as stream them to devices ranging from smartphones to smart TVs for $15 per month.

Cloud gaming is still in its early stages — Microsoft refers to the platform as a beta — but the company is angling for it to become the de facto means for users to play in the future. Building up Game Pass, then, would give Microsoft first-mover advantage in the market.

The company is already beating Sony (SONY) and Nvidia (NVDA) in the cloud market, with the UK’s Competition and Markets Authority estimating that Microsoft controls 60% to 70% of the cloud gaming market share. Adding Activision Blizzard to the pool would make it even more of a dominant force.

Then there’s Activision Blizzard’s King mobile gaming line, which includes “Candy Crush Saga.” Adding that would ensure that Microsoft has a foothold in one of the fastest-growing gaming spaces.

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