The U.K. Deals a Huge Blow to Microsoft’s $69 Billion Activision Bid

Microsoft’s video-game bet suffers a huge blow

Britain’s mergers regulator on Wednesday blocked Microsoft’s $69 billion takeover bid for Activision Blizzard, ruling that buying the maker of “Call of Duty” would give the tech giant too much control of the thriving market for cloud-based video games.

The decision — which surprised many investors after the Competition Markets Authority narrowed the focus of its inquiry earlier this month — poses a serious hurdle for the deal, which already faces opposition from the F.T.C. and is under scrutiny by the E.U. Shares in Activision tumbled 12 percent in premarket trading, while Microsoft’s stock was up almost 8 percent after a solid earnings report.

The deal risks “undermining the innovation” happening in cloud gaming, the C.M.A. said, by giving control of popular game titles to Microsoft, which owns the Xbox platform. (Cloud gaming isn’t reliant on users owning expensive consoles.) The regulator wasn’t swayed by promises from Microsoft — which already accounts for up to 70 percent of cloud gaming — to give access to its top games to rivals like Sony and Nintendo.

Combining Microsoft and Activision could lead to higher prices and fewer choices for consumers, the regulator concluded: “Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors,” Martin Coleman, who chaired a panel that conducted an investigation for the C.M.A., said in a statement.

Microsoft pledged to plow ahead, with its president, Brad Smith, saying that the company would appeal. “This decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works,” he said in a statement.

Company executives and investors had taken heart from the C.M.A.’s decision weeks ago to focus solely on cloud gaming concerns, rather than looking at the broader issue of console competition.

But the path to completing the deal just became harder. Microsoft would be hard-pressed to seal the takeover without winning approval in Britain, which has a sizable video-game market. Moreover, appealing a decision by the C.M.A. requires meeting a high bar, since that process looks mainly at whether the regulator acted rationally and lawfully.

Meanwhile, the European Commission is expected to rule on the takeover by May 22.

Then there’s the matter of timing: Microsoft had previously set a deadline of July 18 to close the deal, though it could seek to push that back pending the appeal.

HERE’S WHAT’S HAPPENING

Consumer-facing companies do just fine despite inflation. Quarterly sales results from the likes of Nestlé and PepsiCo largely held up after price increases that hit double-digit percentages in the past year. But corporate leaders are worried about consumer pushback: Chris Kempczinski, McDonald’s C.E.O., said customers were starting to cut back on menu add-ons like fries.

A real-estate sale by Neil Gorsuch draws fresh ethics concerns. Revelations that the Supreme Court justice sold a vacation property to the head of Greenberg Traurig, a major law firm that argues cases before the court, stoked more worries about justices’ financial entanglements. Senators will introduce a bill requiring a code of ethics for the high court, though Chief Justice John Roberts has declined to testify on the matter before Congress.

G.M. will stop selling its Bolt electric car. The automaker said it would cease production of the model, which accounted for nearly all of the 20,000 E.V.s it sold in the U.S. in the first quarter, in favor of newer electric S.U.V.s and trucks. G.M. also reported an 18.5 percent decline in quarterly profit, in part because of falling sales in China; BYD, the Chinese carmaker backed by Warren Buffett, just became the best-selling brand there.

A top Citigroup banker leaves after revelations of his ties to Jeffrey Epstein. The departure of Paul Barrett, a senior leader in Citi’s private bank, came after The Wall Street Journal reported that he had met with the convicted sex offender while working at JPMorgan Chase, even after that bank cut ties with Epstein.

Is Ken Griffin tempering his enthusiasm for Ron DeSantis? The hedge fund billionaire has been troubled by recent moves by Florida’s governor, including DeSantis’s playing-down of Russia’s invasion of Ukraine and the state’s recent ban on abortion after six weeks, The Times reports.

First Republic’s free fall

Shares of First Republic closed down almost 50 percent on Tuesday, as investors digested its miserable earnings report that revealed customers had pulled $102 billion out of the bank in the first quarter. The regional lender is weighing a multitude of options to shore itself up, including the sale of up to $100 billion in assets. But selling would have a cost: First Republic would have to include its unrealized losses on its balance sheet, and that could in turn hit its already shrinking equity.

Investors are worried about the cost of the bank’s funding. It borrowed about $92 billion from the Federal Reserve and government-backed lending groups, like Federal Home Loan Banks. The problem is that the loans come at a higher cost than customer deposits, and the bank is unable to use the funds to do business, as it could with customer deposits.

Advisers to First Republic reportedly plan to push the banks that already gave it a $30 billion lifeline to make a choice, according to CNBC: Buy bonds from the lender at above-market rates for a loss in the single-digit billions, or face $30 billion in F.D.I.C. fees if First Republic fails.

Policymakers are watching closely. “You can be reassured that the regulators are deeply involved in monitoring the situation and will take the necessary actions,” Jeff Zients, the White House chief of staff, told The Wall Street Journal after the earnings report, without naming specific banks. But the government has yet to do what First Republic hopes it will: push the big banks to come up with a permanent resolution.

Things could get worse before they get better. Deposit outflows have stabilized, but analysts say Tuesday’s share price free fall could spur another run. Before First Republic reported its earnings, “I would have said that it seems like there’s a good chance they can muddle along,” David Smith of Autonomous Research told DealBook. “I think the concern now is that, with the deposit picture being so much worse than people had feared, does that spark another round of outflows?”

Can McCarthy avert debt-limit “chaos”?

House Speaker Kevin McCarthy has vowed to bring a vote as soon as Wednesday on a Republican bill to lift the debt ceiling, even though party support for the measure remains far from certain.

Time is of the essence. “The debt limit is now front and center. Lawmakers have less time than expected,” Mark Zandi, the chief economist at Moody’s, told DealBook. Mr. Zandi and other economists project the U.S. will reach the debt limit as soon as early June — not August, as estimated previously. That creates even more pressure to reach a speedy legislative resolution — or “more chaos” could ensue, Mr. Zandi said.

“A default on our debt would produce an economic and financial catastrophe,” said Treasury Secretary Janet Yellen in a speech on Tuesday. Ms. Yellen predicted that failure to reach a deal would result in borrowing costs rising, along with payments on auto loans, mortgages and credit cards. She also said that military and Social Security payments would stop and credit markets would deteriorate. She called on Congress to raise or suspend the limit without conditions. “It should not wait until the last minute,” Ms. Yellen said.

Even still, about a dozen Republicans are reportedly resisting Mr. McCarthy’s bill because it rolls back clean energy tax credits, while others want work requirements tied to federal aid.

Even if Mr. McCarthy succeeds in getting the legislation passed, President Biden on Tuesday threatened to veto the measure if it makes it to his desk. The impasse increases the odds of an emergency measure to temporarily suspend the debt limit for a few weeks, Mr. Zandi said. “It’s likely they’ll kick the can down the road and push the day of reckoning to September.”

“Show me a school that I shut down and show me a factory that I shut down. Never. I never did. I gave a public-health recommendation that echoed the C.D.C.’s recommendation, and people made a decision based on that.”

— Dr. Anthony Fauci. In an extended interview with The New York Times Magazine, America’s former top public health official opened up about the nation’s response to the coronavirus pandemic, the intense criticism he received and the lessons that should be learned.

Bud Light sees red

When Anheuser-Busch InBev reports its quarterly results next week, Michel Doukeris, the brewer’s C.E.O., may face his toughest questioning yet about the company’s deepening U.S. problems.

AB InBev said on Tuesday that two executives were on a leave of absence, as the world’s biggest beer maker tries to put the lid on a controversy that erupted this month over a social media campaign for Bud Light featuring the transgender influencer Dylan Mulvaney.

The backlash was swift. Bud Light sales have fallen amid calls for a boycott from conservative lawmakers and celebrities. Gov. Ron DeSantis of Florida, who has made a habit of attacking companies whose politics he disagrees with, weighed in too: “It’s part of a larger thing where corporate America is trying to change our country.”

AB InBev is the latest consumer brand to become embroiled in America’s culture wars. DeSantis, a potential G.O.P. presidential candidate, has also fought with Disney after it criticized the state’s so-called “don’t say gay” law.

Sales were already lagging in North America. The region had been AB In Bev’s worst-performing market by volume of beer sold, and Bud Light sales were falling. “This just steepens that curve of decline,” Harry Schuhmacher, the publisher of Beer Business Daily, told The Times.

Mr. Doukeris has been largely silent. He told The Financial Times, before the controversy erupted, that he tried to avoid polarizing issues and that it was not necessary for the company to be “out there and talking about everything.” But on April 14, Brendan Whitworth, the company’s North American C.E.O., issued a statement that tried to shift the focus from politics to beer.

And the company has sidelined Alissa Heinerscheid, the vice president of marketing for Bud Light, and Daniel Blake, who oversees marketing for Anheuser-Busch’s mainstream brands.

THE SPEED READ

Deals

• Getty Images rejected a $4 billion takeover bid from the activist investor Trillium Capital, saying the offer was not “sufficiently credible.” (Bloomberg)

• Binance.US called off its $1.3 billion deal for assets of Voyager Digital, the bankrupt crypto lender. (Reuters)

• Endeavor agreed to sell IMG Academy, a for-profit boarding school for promising young athletes, to the investment firm BPEA EQT at a $1.25 billion valuation. (WSJ)

Policy

Best of the rest

• The hedge fund mogul Ken Griffin has given $25 million to Success Academy, New York’s biggest charter-school operator. (Bloomberg)

• “Black-Scholes at 50: how a pricing model for options changed finance” (FT)

• Xerox is donating Parc, the research center that birthed the modern P.C., the graphical user interface and the mouse, to the nonprofit institute SRI International. (Quartz)

• The story of GameStop mania is becoming a movie, starring Seth Rogen as the hedge fund manager Gabe Plotkin and Paul Dano as the meme-stock influencer Keith Gill. (Insider)

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