Activision Deal Creeps Along

Activision Deal Creeps Along

This article has been revised and corrected from the original version.

The European Union has approved Microsoft Co.’s long-awaited acquisition of Santa Monica-based Activision Blizzard Inc., but the deal still faces big hurdles.

The $68.7 billion acquisition would make Microsoft the third largest gaming company in the world. As it stands today, Activision is one of the biggest companies in the Los Angeles area, ranking third in terms of market capitalization behind the Walt Disney Co., and Thousand Oaks-based Amgen Inc., respectively. Microsoft announced its intent for the all-cash deal in January 2022, and Activision shareholders approved it in April 2023.

While the EU has dropped its opposition, the Federal Trade Commission and the U.K Competition and Markets Authority are both still standing in the way of the merger, arguing that it could stifle competition in the video game and cloud-gaming market.

“We intend to meaningfully expand our investment and workforce throughout the EU and we’re excited for the benefits our transaction brings to players in Europe and around the world,” Activision Chief Executive Bobby Kotick said in a statement.

Mutual benefits

Activision owns major franchise titles such as “Call of Duty” and “Diablo” and has a market capitalization upwards of $60 billion. Peer Fiss, a professor of management and organization at the USC Marshall School of Business, said that both sides would win should the deal go through. Amid international pushback, he said that Microsoft may be motivated to keep going in order to prevent its competitors, such as Sony, from buying Activision.

“Activision gets, of course, access to Microsoft’s tech, their human capital and finances to improve their offerings and their features, and really a robust technology infrastructure to support its operations,” Fiss said. “Microsoft is lacking a presence in mobile gaming and the acquisition of Activision provides them with what they have so far not been able to build.”

The deal has a reported deadline of July 18, after which Microsoft may have to pay a $3 billion breakup fee to Activision if it falls apart.

Clashing cultures

In addition to its content library, Microsoft is by extension purchasing Activision’s notoriously troublesome work environment. Activision agreed to pay $35 million to the Securities and Exchange Commission in February to settle charges that it failed to maintain disclosure controls and procedures, as well as charges that it violated an SEC whistleblower protection rule. The company also settled a lawsuit in March 2022 with the Equal Employment Opportunity Commission regarding its allegation that Activision “subject(ed) employees to sexual harassment, pregnancy discrimination and retaliation related to sexual harassment or pregnancy discrimination.” As part of the settlement, Activision created an $18 million fund for eligible claimants who experienced such conditions during their employment at Activision.

A 2021 lawsuit filed by the California Department of Fair Employment and Housing said Activision had a “pervasive frat boy workplace culture” and noted its workforce is only about 20% women. The DFEH lawsuit is ongoing, and Activision denied this characterization of its company culture.

Michael Pachter, managing director of equity research at Wedbush Securities in downtown Los Angeles, said that many video game companies have a prevailing “bro culture.” He anticipates that Microsoft would take notable steps to improve Activision’s workplace environment.

“Microsoft, they truly are a responsible corporate citizen, and they actually care about that stuff,” Pachter said. “They walk the talk, they actually do it, so I would think that Activision will become a better place for women to send resumes.”

Reporting done by the Wall Street Journal claimed that Kotick was aware of internal misconduct and harassment issues but did not act on them or alert the board. Activision stated that it conducted multiple outside reviews, which it said found this claim to be false.

“When (Activision) received complaints we responded to them appropriately, “an Activision spokesperson said. “After the extensive and thorough reviews … the board concluded there was never widespread or systemic harassment, retaliation or discrimination at the company. The board and advisors also concluded there was no evidence that the company’s senior executives ignored complaints when they were reported.”

Should the acquisition go through, Kotick would remain chief executive until closing and would receive a $15 million termination payment. Regardless of the deal’s outcome, Activision’s employees may not support Kotick remaining as its CEO. In the fall of 2021, more than 1,000 workers signed and published a petition to remove him from the company.

“This provides a graceful opportunity for him to step down,” Fiss said. “If it doesn’t go through, he’s probably in a much more difficult situation, because he probably still needs to step down … he walks away financially fine regardless, but this is, to a significant extent, a face-saving situation.”

Microsoft structured

Microsoft’s past acquisitions, including its 2018 accession of internet hosting service GitHub, have not involved large layoffs. With the exception of redundant staffing in departments such as legal, Activision would likely not see huge cuts. Pachter said that engineers and developers would probably be safe, stressing that Microsoft values the studios it’s purchasing and won’t close them. However, the two companies have significantly different work cultures, and such a change may lead to some Activision employees walking.

“Microsoft is much more structured by the book and Activision has retained some of the negative elements of a startup culture, not the positive ones,” Fiss said. “I would expect that Microsoft, in order to protect itself from some of these issues, will sort of implement more of its human resources approach … but these are very different cultures in terms of organizations.”

The EU’s ruling was based on an agreement from Microsoft that, for the next 10 years, Activision titles would be available on any competitor’s cloud gaming service without any fees so long as the player has obtained the game license. For example, a player who has purchased Activision’s “World of Warcraft” could play the game on a Sony PlayStation console free of charge. This concession from Microsoft may address the FTC’s concern about how the merger of these two companies could suppress competition in the cloud gaming market. The FTC is scheduled to hold an evidentiary hearing regarding the deal on Aug. 2.


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