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Microsoft Gambles on ‘Nice Guy’ Technique to Close Activision Megadeal

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Early this month, Brad Smith, Microsoft’s president, met with Lina Khan, the chair of the Federal Trade Commission, to push for regulatory approval of Microsoft’s $69 billion acquisition of the video game company Activision Blizzard.

Mr. Smith’s gambit — which included offering to maintain Activision’s blockbuster game Call of Duty widely available to satisfy competitive concerns — failed. A day after their meeting, Ms. Khan’s agency sued to forestall the blockbuster deal.

But in an interview this week, Mr. Smith was sanguine. “She didn’t take me up on my offer, but once I said give peace a probability, she smiled not less than slightly,” he said of Ms. Khan. “So any time any person can end a gathering by smiling even slightly, there’s at all times slightly hope that we will sit down together in the longer term.”

Mr. Smith’s peacemaking comments reflect how Microsoft intends to approach the following phase of its deal for Activision. Removed from giving up on the acquisition, he said, the corporate intends to gamble that its “nice guy” strategy could still work.

In a single plan, Microsoft hopes to win over regulators in Europe, people acquainted with the approach said. European approval of the Activision deal could force U.S. officials to succeed in a settlement allowing for the acquisition to maneuver forward or for a faster, more favorable court to listen to the case, the people said.

Microsoft filed its response to the F.T.C. lawsuit on Thursday, arguing that the deal would expand access for gamers. “Giving consumers high-quality content in additional ways and at lower prices is what the antitrust laws are presupposed to promote, not prevent,” the filing said.

John Newman, the deputy director of the F.T.C.’s competition bureau, said in a Thursday night statement that it was “confident in our case and look ahead to presenting it at trial.”

The F.T.C. has said the deal ought to be stopped because it could harm consumers. It said Microsoft, which makes the Xbox console, could use Call of Duty and other popular Activision titles to lure gamers from rivals, especially Sony, which makes the PlayStation console.

Microsoft’s seemingly conciliatory approach is an element of a virtually complete cultural transformation by the corporate because the Nineteen Nineties, when it was generally known as the “Evil Empire” due to its strong-arm tactics to dam out competitors. But under Satya Nadella, who became chief executive in 2014, and Mr. Smith, who can also be Microsoft’s top lawyer, the corporate has bent over backward in recent times to indicate it has grown up.

Pushing the Activision deal through has implications for greater than just Microsoft. The F.T.C. lawsuit is a landmark in a recent era of presidency scrutiny of the most important tech corporations. Ms. Khan has staked an aggressive trustbusting agenda on the case, which legal experts said is likely to be difficult to win. If Microsoft cannot get the deal approved, other tech behemoths shall be less prone to have the opportunity to force a megadeal through.

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“They may fight it,” said Sid Parakh, a portfolio manager at Becker Capital, which invests in Microsoft. “It’s a bit more above and beyond this deal. It’s also a press release to the F.T.C.”

With Microsoft sitting on greater than $100 billion to spend, he added, “they don’t need to back down from time to time have every acquisition shot down.”

The acquisition of Activision must close by mid-July or Microsoft must pay as much as $3 billion in a breakup fee. Many hurdles remain, including approval from other global regulators, notably in Britain and within the European Union. If Microsoft can reach a proper settlement with them, it would depart the F.T.C. at a critical juncture.

The F.T.C. sued Microsoft in administrative court, which doesn’t have the ability to stop the deal from closing while the case is pending. If other regulators approved the deal, the F.T.C. would want to come to a decision whether to file an injunction against the acquisition in federal court to stop it. The injunction process could move quickly, potentially handing Microsoft a swift legal victory.

“There isn’t a sensible, legitimate reason for our transaction to be prevented from closing,” the chief executive of Activision, Bobby Kotick, said in a press release on Wednesday. “We consider we’ll prevail on the merits of the case.”

The F.T.C. declined to comment on Microsoft’s strategy or Mr. Smith’s conversation with Ms. Khan. Holly Vedova, the director of the F.T.C.’s Bureau of Competition, said the agency is at all times willing to contemplate proposals from corporations seeking to settle antitrust concerns.

Microsoft is attempting to strike a balance between, on the one hand, seeming open to a settlement and, on the opposite, preparing to destroy the F.T.C.’s case in court. It has hired Beth Wilkinson, who prosecuted the 1995 Oklahoma City bombing case before becoming one among America’s premier corporate litigators, to argue on its behalf before the F.T.C. in-house court.

Mr. Smith said he was optimistic that the case could avoid a messy trial, partly due to Microsoft’s previous experiences with antitrust enforcement.

Within the Nineteen Nineties, the corporate was known for its scorched-earth business tactics, bundling software products together to edge out competitors. In 1992, as regulators investigated the corporate, the Microsoft co-founder Bill Gates dismissed the scrutiny, saying, “The worst that might come of that is that I could fall down on the steps of the F.T.C., hit my head and kill myself.”

Two years later, Microsoft agreed to a federal consent degree allowing pc makers more freedom to put in programs from other corporations. It staved off being broken up after a 1998 antitrust trial, and at last settled with the George W. Bush administration in 2001.

“The trial forced Microsoft to grow up, particularly by way of its relationships with regulators and institutions beyond the tech industry,” said Margaret O’Mara, a professor on the University of Washington who researches the history of tech corporations.

In 2001, Mr. Smith walked into interviews to be Microsoft’s top lawyer with a message: It was time to make peace with regulators and competitors. He got the job. Over the following several years, he reached legal settlements over competition concerns with governments world wide and other industry players.

It was not at all times smooth sailing. Negotiations between the corporate and Sun Microsystems, a server company that made the favored Java programming language, fell apart and took a yr to get back on target. In 2004, Steve Ballmer, Microsoft’s chief executive on the time, was on a plane to Brussels to announce a cope with the European Commission when Mr. Smith got news that the commission as an alternative was going to sue Microsoft for unfair competition. It took five years to secure a deal.

Since Mr. Nadella took over, Microsoft has embraced a fair more open stance. His first acquisition was the studio that makes Minecraft, a game wherein children learn and socialize in an expansive virtual world. He also spent $7.5 billion to purchase GitHub, a software platform that supports open-source code.

Microsoft is now the world’s second-most priceless public company, largely driven by its strong cloud computing offerings. The enterprise business at the center of its growth generally attracts less government attention than social media or other consumer-facing ventures.

Globally, Mr. Smith has presented Microsoft as a friendly giant willing to work with skeptical lawmakers. He has proposed middle-ground rules on contentious issues like app stores and supported bipartisan interests just like the expansion of broadband.

Mr. Smith maintains powerful relationships in Washington. A bundler for President Biden’s campaign, he attended a White House state dinner for the French president, Emmanuel Macron, just days before the F.T.C. sued to dam the Activision deal.

After the deal was announced in January, Microsoft went to great lengths to assuage the fears of regulators. Mr. Smith and Mr. Nadella traveled to Washington in February to advertise the deal’s advantages. The corporate also made peace with an agitating labor union, which in turn lobbied the F.T.C. on the deal. And it promised Sony that it could keep Call of Duty on PlayStation for years, and signed a deal to place the sport on Nintendo’s Switch.

Mr. Smith said that “things hurried” in the ultimate weeks before Microsoft was sued. When F.T.C. staff met with Microsoft’s team, it became clear that the agency had serious concerns, he said.

“Our team asked, ‘Could we discuss a settlement proposal?’ And the staff said, ‘Not with us,’” he said. Later discussions with the leadership of the agency’s antitrust bureau didn’t bear fruit, he added.

On Dec. 6, Microsoft drafted a proper settlement proposal for the agency. Mr. Smith declined to say exactly what it contained but said it addressed “all the problems regarding Call of Duty,” referring to fears that Microsoft could pull the title from rival consoles. Mr. Smith spoke to every of the agency’s 4 commissioners, virtually, for an hour the following day.

A day after that, the F.T.C. commissioners voted 3 to 1 to sue.

But Mr. Smith said he refused to think about the situation as an us-versus-them situation.

“I’ll at all times start by asking myself, could I even have done more?” he said. “What I do know is that January brings a recent yr.”

Kellen Browning contributed reporting.

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