Microsoft Beats the Antitrust Odds on Its Activision Deal

The tough road ahead for global antitrust cops

Microsoft is poised to close its $69 billion takeover of the video game publisher Activision Blizzard, after British regulators signed off on the transaction on Friday.

The news gives the tech giant a win that at times had seemed unlikely, given the fierce opposition from regulators in the U.S. and Europe in the past two years. It also raises questions about the effectiveness of a campaign by antitrust enforcers to crack down on big-ticket takeovers.

Microsoft overcame major hurdles to seal its biggest-ever takeover, which is meant to add blockbuster titles like “Call of Duty” to its stable of video game titles. The transaction faced tough scrutiny — in particular from the F.T.C., which under Lina Khan has adopted a more aggressive stance on major deals.

The F.T.C. sued to block the transaction last year, testing novel legal arguments about how much the deal would amplify Microsoft’s dominance in video games, since the two companies aren’t considered direct competitors. In April, Britain’s Competition and Markets Authority opposed the acquisition as well — dealing Microsoft a serious and unexpected blow in that overturning the agency’s ruling would require clearing a high legal bar.

But Microsoft won again and again. In July, a judge denied the F.T.C.’s request to block the deal. And a tweak to the acquisition satisfied the C.M.A.’s concerns, a rare instance of that agency reversing course: Microsoft agreed to sell the cloud streaming rights on current and future Activision games outside of the European Economic Area to the French company Ubisoft for 15 years.

Corporate leaders feel increasingly emboldened by Microsoft’s wins. C.E.O.s and their advisers say that the Activision deal has shown the limits of efforts to rewrite decades-old antitrust principles. Indeed, several big acquisitions have been announced since the summer, including Exxon Mobil’s proposed $59.5 billion deal for Pioneer Natural Resources and Cisco’s $28 billion bid for Splunk.

Still, the F.T.C. insists that it will continue to challenge mergers in court. And in its statement on Friday, the C.M.A. admonished companies to take its investigations seriously: “The tactics employed by Microsoft are no way to engage,” the agency said. That serves as a warning to the likes of Adobe, whose $20 billion takeover of the software company Figma is under review by the agency.

HERE’S WHAT’S HAPPENING

JPMorgan Chase beats quarterly earnings forecasts. Revenue and profit at America’s biggest bank came in higher than expected, powered by its investment banking and lending businesses. Separately, Wells Fargo also reported strong results.

Steve Scalise withdraws from the House speaker race. The Louisiana congressman pulled out of the running on Thursday after failing to win over hard-right Republicans, putting him short of the 217 votes needed to be elected. The decision prolongs the paralysis in the House with no clear front-runner emerging.

Ford says it can’t raise its contract offer to striking workers without damaging its business. The carmaker said it was “at the limit” on Thursday after the U.A.W. union expanded its strike to the company’s biggest factory and talks broke down on Wednesday. Separately, Ted Sarandos, co-C.E.O. of Netflix, said negotiations with striking actors stalled when the union proposed adding a “levy” to subscribers of streaming services.

Chinese inflation and trade data paint a bleak economic picture. Consumer prices were flat last month, pushing the country to the brink of deflation, and exports contracted. The data suggest the world’s second-largest economy is still struggling, which could hurt global growth.

The Biden administration will announce $7 billion in grants to build hydrogen hubs. President Biden and Jennifer Granholm, the energy secretary, will unveil the winning projects on Friday to be located in regions including the Gulf Coast, Appalachia and California. The funding, part of the Inflation Reduction Act, is meant to narrow America’s production gap in clean hydrogen.

The Israel-Hamas war stokes global slowdown fears

The escalating conflict between Israel and Hamas — on Thursday, Israeli officials ordered 1.1 million residents of northern Gaza to evacuate, which the U.N. called impossible and potentially calamitous — continues to generate fallout far from the Middle East.

Finance officials at the International Monetary Fund’s annual meeting in Marrakesh, Morocco, say that they’re increasingly worried about consequences for the global economy. And European officials are investigating Elon Musk’s X over how it polices war-related content.

“Geopolitical risk has become the most significant risk for growth, for development and for common prosperity,” Bruno Le Maire, France’s finance minister, said at the I.M.F. gathering. So far, the consensus, shared by Treasury Secretary Janet Yellen, is that the war’s economic impact will be contained.

But the effects of a widening conflict — particularly a spike in energy prices — are weighing heavily on policymakers. “We are very closely monitoring how the situation evolves, how it is affecting especially oil markets,” said Kristalina Georgieva, the I.M.F.’s managing director.

And the European Union is pressing X over its content policies. E.U. officials have asked social networks, including those run by Meta and TikTok, about gory pictures and videos, misinformation and other illicit material appearing on their sites. But X and the messaging app Telegram have faced tougher scrutiny because of their more restrained content moderation.

X’s chief, Linda Yaccarino, outlined on Wednesday the company’s efforts to comply with European regulations. But the investigation poses significant risks: X faces enormous fines and a temporary suspension of services in Europe if it is found to have violated the E.U.’s Digital Services Act.

• In related news: The U.S. and Qatar denied Iran access to $6 billion in oil revenue that was recently unfrozen as part of a prisoner deal, amid criticism of Tehran’s backing of Hamas. And the Israeli billionaire Idan Ofer and his wife, Batia, resigned their seats on the executive board of Harvard’s Kennedy School of Government to protest university leaders’ response to a student letter blaming Israel for the attacks.

Inflation jitters are back

Traders this morning have raised the odds for another Fed interest-rate increase from unlikely to a near tossup, as inflation worries and bond-market jitters return. The uncertainty comes as earnings season kicks off in earnest on Friday, with a slew of corporate reports from Wall Street and banking giants coming over the next several days.

Stocks fell after Thursday’s Consumer Price Index report came in slightly above expectations, snapping the S&P 500’s four-day winning streak. Investors sold off stocks amid renewed concern that the Fed’s efforts to tamp down inflation were falling short.

Investors had shrugged off a strong jobs report and robust Producer Price Index data. But they saw few promising signs in the latest inflation numbers. “If you just look at the last three months, the annualized rate of CPI is now at +4.9%, which is the highest it’s been since August 2022,” Henry Allen, a markets strategist at Deutsche Bank, wrote in an investor note this morning. That’s well above the Fed target of 2 percent.

Many traders and analysts see the Fed keeping borrowing costs unchanged in November. But, according to Deutsche Bank, traders now see a 39 percent chance of a rate increase in December — up nine percentage points in the past day.

That spike matched moves in the bond market. The yields on the 30-year and 10-year Treasury notes jumped on Thursday as questions swirled over the Fed’s next move. (Yields, which climb when prices fall, have eased a bit this morning.)

“The bond market is sending a message that it is still worried about inflation and that the Fed will make good on its promise to keep rates higher for longer,” Chris Zaccarelli, the chief investment officer for Independent Advisor Alliance, an investment advisory firm, wrote in a research note.

Aside from earnings, the next big event on investors’ radar will be a speech Thursday by Jay Powell, the Fed chair, in which he is expected to address inflation, the labor market and interest rates.

$668 billion

— The estimated amount Americans failed to pay in taxes in 2021, the I.R.S. said Thursday. The shortfall is the largest ever and includes $542 billion in underreported income. The disclosure comes as the agency is stepping up audits of high-income individuals.

Caroline Ellison leaves the hot seat, unscathed

Caroline Ellison, the prosecution’s star witness in its criminal fraud case against FTX founder Sam Bankman-Fried, concluded her testimony on Thursday. The initial verdict: Bankman-Fried’s defense team didn’t land any big blows to undermine her statements.

During three days on the stand, Ellison recounted how FTX and Alameda Research, the hedge fund she ran for Bankman-Fried, sank under a mountain of bad bets, with Bankman-Fried calling the shots. Her testimony is central to prosecutors’ case that the fallen crypto wunderkind defrauded customers and business partners out of billions.

Bankman-Fried has pleaded not guilty, and blames Ellison for the implosion at Alameda. But Mark Cohen, Bankman-Fried’s defense lawyer, failed to elicit any major contradictions or inconsistencies from Ellison on Thursday during five hours of questioning, The Times reports.

Here’s the latest from the trial:

• Ellison said that she and Sam Trabucco, her co-C.E.O. at Alameda, ran the firm largely on their own from 2020. But by 2022, she said, Bankman-Fried was deeply involved, and even signed off on tapping into FTX customer’s deposits to pay back lenders of the trading firm. “I think they were terrible mistakes,” she said.

• Ellison admitted to misleading staff about Alameda’s precarious finances. She did so, she said, to keep up staff morale as the wider crypto market slump, or “crypto winter,” frayed nerves.

The closely watched crypto fraud trial is set to resume on Friday. The next big witness to watch is Nishad Singh, a former high-ranking FTX executive, who, like Ellison, has pleaded guilty and agreed to cooperate with the authorities in the case against their former boss.

THE SPEED READ

Deals

• The three Exxon Mobil directors picked by Engine No. 1, the eco-minded activist hedge fund, unanimously voted for the company’s takeover of the shale oil giant Pioneer Natural Resources. (Bloomberg)

• Disney and Comcast have each reportedly hired investment banks to value Hulu, as the entertainment giants move ahead with talks to simplify ownership of the streaming service. (CNBC)

Policy

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