The FTC Believes Microsoft Isn’t Allowed to Lay Anyone Off (Premium)

The U.S. Futile Trade Commission (FTC), er, Federal Trade Commission, is at it again: And you’re not going to believe its latest hissy fit. This ridiculous regulatory body believes that Microsoft’s $69 billion Activision Blizzard acquisition was contingent on the software giant promising not to lay off any of the 10,000 people previously employed by that company. Not one of them.

“Microsoft’s publicly reported plan to eliminate 1,900 jobs in its video game division … contradicts Microsoft’s representations in this proceeding, which seeks to temporarily pause Microsoft’s acquisition of Activision pending the FTC’s evaluation of the merger’s antitrust merits,” the FTC writes in a new legal challenge. “Microsoft represented to this Court that ‘the post-merger company will be structured and operated in a way that would readily enable Microsoft to divest any or all of the Activision businesses as robust market participants in the unlikely event that such a divestiture is ordered’.”

Here’s what that means.

Microsoft completed its $68 billion acquisition of Activision Blizzard in October 2023 after having cleared two major legal hurdles, one in the U.S. and one in the UK. The FTC was responsible for Microsoft’s issues in the U.S., but its evidence-less arguments were easily defeated in court, not once, but twice. Then, in an unexpected move, the FTC revived its internal proceeding against Microsoft, something it had never done after losing a case in federal court. And it’s been bitching about Microsoft ever since.

According to the FTC, Microsoft promised the federal court that defeated the FTC that it would structure the combined Microsoft/Activision Blizzard in such a way that it could be easily unwound should a future ruling order Microsoft to divest itself of Activision Blizzard. But Microsoft instead created a new Microsoft Gaming division that comprises the 10,000 employees who came to it in the acquisition and another 12,000 people who were already employed within Xbox at Microsoft. And then it announced last month that it was laying off 1,900 of these employees, or 8 percent of them.

Any layoff is painful. But surely, it’s understandable, predictable, and inevitable that there will be redundancies when you combine two businesses. And that the acquirer would have to eliminate some employees, ideally sticking with the best employees from the combined companies. And in the scope of things, 8 percent doesn’t seem unreasonable. Indeed, as part of its most recent earnings announcement, Microsoft explained recently that the cost of operating its gaming business is now 38 percent higher than it was before the acquisition.

The FTC doesn’t seem to understand that. Indeed, the FTC seems to believe that Microsoft’s acquisition of Activision Blizzard is conditioned on it not laying off any employees. That’s unreasonable. Especially since the layoffs include a mix of former Activision Blizzard and Microsoft employees.

“Microsoft claimed that the public equity favoring an injunction ‘is more acutely implicated in horizontal mergers, where competing entities integrate their operations and, in the process, often eliminate redundancies’,” the FTC legal filing continues. “Microsoft’s recently-reported plan to eliminate 1,900 jobs in its video game division, including in its newly-acquired Activision unit, contradicts the foregoing representations it made to this Court. Specifically, Microsoft reportedly has stated that the layoffs were part of an ‘execution plan’ that would reduce ‘areas of overlap’ between Microsoft and Activision, which is inconsistent with Microsoft’s suggestion to this Court that the two companies will operate independently post-merger. Moreover, the reported elimination of thousands of jobs undermines the FTC’s ability to order effective relief should the pending administrative proceeding result in a determination that Microsoft’s acquisition of Activision violated Section 7 of the Clayton Act. The reported layoffs thus underscore the FTC’s need for injunctive relief pending completion of the administrative proceeding.”

So the question here is obvious enough. Did Microsoft literally promise a federal court that it would operate Activision Blizzard as an independent company, much as it did with other acquisitions like Mojang and ZeniMax Bethesda, and was this a condition of this acquisition, a concession made to get it done?

U.S. District Judge Jacqueline Scott Corley addressed the structure of the resulting post-acquisition company in her ruling against the FTC last July, noting that “Microsoft and Activision will act as parent and subsidiary,” in what’s called a vertical merger, and that there was no “planned dismantling of operations.” The FTC is arguing that Microsoft instead implemented a horizontal merger—a more typical acquisition, I guess—in which it merged Activision’s operations and employees into a new business unit. And that in doing so, it is making it harder for the acquisition to be unwound should the FTC ultimately prevail in its ex post facto legal proceedings.

This is overly simplistic, like most of the FTC’s arguments in this drawn-out drama.

Activision Blizzard’s biggest assets were its game studios, and this was why Microsoft wanted to acquire the company in the first place, to gain access to its broad library of games and franchises across multiple platforms, especially mobile. These studios still exist, and they’re still working on games independently of other Microsoft game studios. In that sense, the vertical merger remains. But Activision Blizzard, like any other company, also had business operations staff, and these are the people who were most likely the most impacted by the layoffs. Some percentage of the 8 percent in this new Microsoft Gaming business unit.

The FTC did not sue to block this acquisition because it was concerned about those employees. It sued because of baseless concerns that Microsoft would pull Call of Duty off the PlayStation. Microsoft was never going to do that—it would be business suicide—but the company did reach a 10-year agreement with Sony to prove that it wouldn’t happen regardless. And Judge Corley ruled against the FTC because “the record evidence points to more consumer access to Call of Duty and other Activision content,” not less, as the FTC claimed.

In other words, this is just a pedantic attempt to prove a semantic point that has nothing to do with the scrutiny the acquisition absolutely required and the high bar that Microsoft nonetheless passed. No one in their right mind—not regulators, and not the courts—would ever expect Microsoft to move forward without reducing redundancies in an acquisition of this size. The costs of doing otherwise are just too great, and they undermine the combine company’s ability to operate profitably.

Put simply, this is just another example of the FTC wasting time and taxpayers’ money on nothing when it should be pursuing the truly abusive monopolies in Big Tech. If there’s any party here that deserves scrutiny now, it’s the FTC.