Microsoft and Activision Prevail in Landmark Merger Case
July 25, 2023
FTI Consulting subsidiary Compass Lexecon secures a landmark victory for clients Microsoft and Activision Blizzard, a leading game developer and publisher, in a highly contested vertical merger, the largest technology merger in history.
In December 2022, the U.S. Federal Trade Commission (“FTC”) filed a complaint in the federal court in California to halt Microsoft’s acquisition of Activision Blizzard, citing antitrust concerns. The FTC alleged that the deal would allow Xbox-maker Microsoft to suppress competition in the gaming industry and monopolize Activision Blizzard’s popular game titles such as World of Warcraft and Call of Duty. Microsoft and Activision Blizzard retained FTI Consulting subsidiary Compass Lexecon to respond to FTC’s complaint.
- Compass Lexecon was engaged to provide economic analysis and expert testimony on the deal’s impact on competition and procompetitive efficiencies in the gaming industry.
- Compass Lexecon expert, Professor Dennis W. Carlton, testified before the federal court that the FTC expert’s economic analysis was flawed, relied on unsupported assumptions, and failed to show that the transaction would lead to unfair competition and foreclosure of Activision Blizzard’s content from Microsoft rivals.
- Compass Lexecon’s economic analysis and expert testimony identified deal-specific benefits, including expanded access to Activision Blizzard’s gaming content, lower costs for gamers and increased incentives for investment in game development.
- Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California denied the FTC’s request for a preliminary injunction, ruling that the FTC had failed to demonstrate that it would likely prevail in its claim that the proposed merger would substantially lessen competition and that, in contrast to the FTC’s claims, there would be more consumer access to Activision content following the merger. The U.S. Appeals Court for the 9th Circuit then denied the FTC’s appeal, thereby allowing the acquisition to close.
- Judge Corley repeatedly referenced Professor Carlton’s testimony in her opinion criticizing the FTC expert’s analysis and acknowledged several post-transaction benefits noted in Professor Carlton’s testimony.
- Judge Corley’s opinion relied on several recent challenges to vertical mergers where judges ruled for the defendants — United States of America v. AT&T Inc., DirecTV Group Holdings, LLC, and Time Warner Inc.; Federal Trade Commission v. Meta Platforms, Inc.; and the FTC ALJ opinion in In the Matter of Illumina, Inc. and Grail, Inc. — all of which are cases where Professor Carlton served as an economic expert for the merging parties.