Microsoft may abandon Activision merger if federal judge grants FTC request

Microsoft legal counsel suggests that the company could abandon the $68.7 billion merger with Activision if federal courts grants the FTC's request for a preliminary injunction.

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The fate of the Microsoft-Activision merger may hang in the balance of a decision from Northern California's federal courts. In a recent court filing, Microsoft and Activision lawyers indicate that the acquisition could be terminated if Judge Jacqueline Scott Corley issues a preliminary injunction at the FTC's behest.

The U.S. antitrust Commission wants to stop the merger, and has challenged the deal in its own internal administrative courts instead of in federal court. This is by design: The FTC can effectively kill the merger through years-long process where the Commissioners, not the Administrative Law Judge who oversees the case, have the final say on merger approval. The FTC has been creative in its tactics. In the most recent motion, Microsoft lawyers say that the FTC opted for an 8-month schedule for the admin case rather than a shorter 5-month proceeding, which set the first hearing on August 2, well past the merger's July 18 expiration date.

Knowing that the FTC would rule against the merger and effectively kill it, Microsoft and Activision had planned to combine any time after June 15. This prompted the FTC to seek an emergency temporary restraining order (TRO) to prevent the two companies from merging for a specific period of time. To preserve status quo and to address the more important request--a preliminary injunction order--Judge Corley has granted the TRO.

The preliminary injunction (PI) is the Commission's mail goal. The FTC seeks a very specific preliminary injunction that would prohibit Microsoft from merging with Activision for the duration of the administrative lawsuit.

Microsoft's lawyers say that this PI spells doom for the merger. Counsel outlines a timeline that could keep the merger in stasis for years.

"In this case, the proceedings before the ALJ would last until at least December 2023 (at the absolute earliest," Microsoft lawyers say.

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This is just the beginning, though. A new rule change from FTC allows the Commissioners to ignore the ALJ (Administrative Law Judge)'s decision and instead put merger approval up for a vote. The process between the ALJ's recommendation and the FTC's final vote could take another year.

This means the merger could be held in limbo for at least until December 2024. To keep the merger in its current state would require re-negotiations and many millions more dollars being spent on attorney fees and filings, all while both companies would have to continue independent operations as the video games industry continues rapidly expanding and evolving.

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Knowing the importance of the preliminary injunction decision, Microsoft lawyers have asked Judge Corley for enough time to prepare an adequate and thorough case with up to 5 days of expert testimony and depositions. Judge Corley has granted this request, and has scheduled five days of evidentiary hearings: June 22nd, June 23rd, June 27th, June 28th, and June 29th.

The FTC does not have to prove its entire case, however, and Judge Corley must make three very specific determinations.

MLex reporter Michael Acton has an excellent breakdown on how this process works: