Key takeaways
- Sony has finally agreed to a deal with Microsoft over the future of popular game Call of Duty, with PlayStation users still able to access the franchise in a ten-year agreement
- The move comes after the U.S.’ FTC failed to block the merger in courts, while the U.K.’s CMA has reopened negotiations with Microsoft
- Activision and Microsoft’s stock prices are up as the mega-deal is set to close today
Microsoft has entered into a ten-year agreement with Sony to keep Call of Duty available on the latter’s gaming consoles, in a major step forward for Microsoft’s Activision takeover. The acquisition has had its ups and downs, and it’s not out of the woods yet, but Wall Street reacted positively to the news.
Microsoft and Sony have significant skin in the game (pun intended): Microsoft owns Xbox, while Sony has PlayStation. One hoarding a mega-franchise like Call of Duty over the other would always be contentious, but the two have agreed on the game franchise’s future. Here’s the latest.
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What’s the Microsoft and Sony deal?
Sony and Microsoft have signed a binding decade-long agreement to keep Call of Duty on Sony’s PlayStation consoles, having initially been offered an agreement months before. Microsoft Gaming CEO, Phil Spencer, confirmed the news on Twitter, saying Microsoft “[looks] forward to a future where players globally have more choice to play their favorite games”.
Call of Duty, one of the biggest and most successful gaming franchises ever, is owned by Activision, which Microsoft is set to take over. Sitting at $69 billion, or around $95 a share, the acquisition is set to be one of the largest deals in history.
Naturally, Sony made a fuss about the proposed merger, citing competition concerns and that Microsoft would make the Call of Duty franchise an Xbox exclusive. As recently as last month, Jim Ryan, CEO of Sony’s entertainment division, said the merger wasn’t good for competition in a taped testimony.
But now PlayStation gamers don’t need to worry – at least for the short term. While the agreement details haven’t been disclosed, Microsoft vice chair Brad Smith tweeted that Microsoft “will remain focused on ensuring that Call of Duty remains available on more platforms and for more consumers than ever before”.
Microsoft’s takeover of Activision
Many see the Microsoft and Sony deal as the final step in acquiescing to rivals’ competition concerns, given that the Big Tech behemoth has already taken several steps with other companies to ensure the Activision deal goes through.
At the end of last year, Microsoft signed a 10-year deal with Nintendo to bring Call of Duty to the gaming console, should the Activision deal complete. Online gaming store Steam, which Valve owns, apparently also has an agreement in place with Microsoft that Call of Duty will be released on Steam simultaneously to Xbox.
Chip maker Nvidia, which runs the GEForce Now gaming platform and expressed initial reservations about the acquisition, now has its own deal with Microsoft. The latter’s Xbox catalogue of PC games, like Minecraft, will be made available on GEForce Now. All of these agreements have been made to show regulators that Microsoft is willing to cooperate with its rivals, should the takeover go ahead.
The deal’s regulatory mountains
While Sony might be breathing a little easier now it has an agreement in place, global competition regulators are still fighting the mega-merger – and the clock is ticking, given the deal is set to close today.
The U.K. regulator, the Competition and Markets Authority (CMA) was the first to block the proposed merger in April, saying the deal raised concerns about competition in the cloud gaming market. At the time, Microsoft said it would appeal the ruling and that the CMA had made “fundamental errors” in its assessment.
The European Commission signed off on the deal in May, leaving the CMA between a rock and a hard place. It’s now re-opened negotiations with the Big Tech giant in a bid to resolve the issues first identified in its report, with a two-month pause on the appeal process.
In the U.S., the Federal Trade Commission (FTC) has thrown litigation at Microsoft in a bid to block the deal. Last week, it received a major setback when a San Francisco federal judge blocked the regulatory body’s motion for an injunction to stop the merger from going ahead by the proposed deadline.
The FTC had another line of defense – a plea to the 9th Circuit Court of Appeals to overturn the decision – but it was also quickly rejected. Brad Smith said the decision “brings us another step closer to the finish line in this marathon of global regulatory reviews”.
As a result, it’s looking increasingly unlikely the FTC will have enough time to stop the deal from going ahead.
Wall Street’s reaction
Now that the big day for the merger is here, the stocks are jumping. Buoyed by the better news, Activision shares have risen nearly 13% in the last five days to reach $93. Microsoft agreed to buy the company at $95 a share. As for Microsoft, the computing giant has seen a 4.4% lift to its share price in the same period.
The deal has a ripple effect across its competitors and suppliers. Nvidia, which is set to benefit from the deal with a Microsoft partnership, is up 2% on Tuesday. In the last few days Sony has seen a 4% increase in its stock price, Nintendo has seen a 1.65% lift, and Electronic Arts (EA)’s share price has risen by 2.35%.
The bottom line
It’s been a truly wild ride for Microsoft’s proposed Activision deal. They likely anticipated some regulatory and rival blowback, but the acquisition has been plagued with issues from start to finish. It’s left Activision’s share price at the mercy of the deal and left other companies in similar positions questioning whether their deals might face the same intense scrutiny.
Whether or not that’s a good thing is down to personal opinion, but the stocks have been rising as it looks like the deal, which looked like it would never make it over the line a few weeks ago, could end up completing today. Investors will have the popcorn ready.
Should the Microsoft and Activision merger go ahead today, it’ll be another boon to the already booming tech stock market this year. Get in on the action with Q.ai’s Emerging Tech Kit, chock-full of various tech stocks and ETFs.
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