Activision CEO On The Fallout From The Merger Ruling

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Following is the unofficial transcript of a CNBC interview with Activision Blizzard CEO Bobby Kotick on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Thursday, April 27. Video of the interview will be available on

Interview With Activision Blizzard CEO Bobby Kotick

BECKY QUICK: In the meantime, Microsoft (NASDAQ:MSFT) and Activision Blizzard (NASDAQ:ATVI) promising to appeal regulators’ decision in the UK to block the tech giant’s $69 billion acquisition of the video game maker. Activision released quarterly results right after the this news came out yesterday earlier than had been expected after that news.

The company beat the Street’s expectations both in terms of profit and in terms of revenue. Joining us right now first on “Squawk Box” to talk about all of this is Activision Blizzard CEO Bobby Kotick and Bobby, thank you for being here today. Welcome.

BOBBY KOTICK: Thanks for having me.

QUICK: Okay, we’re gonna talk about the numbers in just a moment because the earnings were quite a bit better than the Street was expecting but the big news yesterday is what happened with the UK’s CMA, the Competition and Markets Authority.

That is what a lot of people assumed was kind of an entity that could not be overruled, could not be appealed to. There is an appeal process, but it’s kind of convoluted. You’re appealing to the same people who just said no to the deal. How does this work?

Lay this out, walk us through this because yesterday, Francis deSouza was here. He’s the CEO of Illumina, and he said, even though he’s fighting regulators, both here and over in Europe, he said he wouldn’t take on the CMA on another deal they saw because they didn’t think it was beatable or that you could appeal it.

KOTICK: Yeah. First, thank you for having me. I always love being here. Just for the benefit of my employees who have worked so hard, you know, we had net bookings up 25%, our GAAP earnings up 70% so we had a great quarter. Business is great, and the ruling was disappointing.

I think when you look at the facts and you look at what the opportunities are for the UK, this was a transaction that was only going to enhance opportunities for competition for our players for employees and it was just a flawed ruling in every respect.

And what it demonstrated to us is that these regulators, they don’t really understand our business. And so, they’re making determinations and judgments that are not factually correct and I think when you go to the tribunal, that’s what you have to focus on is whether or not it was irrational.

It was irrational whether it was fact based, it was not, And I think while Francis might not think that that’s the place to appeal, it was such a—

QUICK: I should say for him, not for you what he was referring to.

KOTICK: Oh right. Well I will tell you—

ANDREW ROSS SORKIN: It’s the only place to appeal. Realistically.

KOTICK: Actually, it is, it was so flawed in every way that it actually is going to create a lessening of competition, which is the opposite of what their mission is. And so we think the compen—the Appeals Tribunal will see that and rule in our favor.

QUICK: How does it work and have there been people who have been successful at this in the past?

KOTICK: Yeah, last year, there was a firm I think it’s called the FNZ that appealed they won. The CMA then had to go back and accept their remedies. And so, you know, there’s a process I think, we didn’t expect to have to use it, but I think that we’ll be successful in that result.

QUICK: Microsoft has kind of alluded to this too that they are looking for ways to kind of massage the regulatory to make some other offerings to come up with it.

And I think the CMA had kind of hinted at the idea that maybe if Call of Duty was spun off, that that might be something that made them feel better about things, is that a realistic expectation? Is that something that there is the possibility for?

KOTICK: You know, I think what we found through this process is that these regulators are now taking dogmatic positions, that they don’t serve the interest in the missions of what they’re actually established to do. So you can’t say, “Oh, we only are going to accept structural remedies, but not behavioral remedies.”

It makes no sense that and that isn’t actually consistent with their historic missions. And so, in this case, you know, divesting something like Call of Duty, it’s, it’s not practical, and they actually didn’t really suggest that.

SORKIN: Can we just talk about sort of the timing of this. So UBS put out a report yesterday saying that they had looked at how transactions that are under appeal work under this regime. The average period of time was five and a half months before you get to a conclusion.

They, by the way, unfortunately seem to think that that conclusion would not be a positive one in your case and looked at a number of the other big deals that were effectively rejected.

That timing takes you past the drop dead for your transaction with Microsoft, in which case, I imagine there would have to be some kind of tolling agreement or something that Microsoft or that you would have to agree to with Microsoft.

Does Microsoft pay for that privilege? How does that work? What’s going on behind the scenes around how this would happen?

KOTICK: Well, I can’t speak to what UBS had to say about the transaction or why they came to that conclusion. I think we and Microsoft and our barristers who are exceptionally experienced at judicial review think that there’s a way to accelerate the process and that the conclusions were so flawed, that we should be able to get an accelerated result and—

SORKIN: That would have to happen in the next two months. Basically, two and a half, three months, right?

KOTICK: Well, I can’t tell you what the timing would be yet because we haven’t filed our appeals briefing. But, you know, we’ll we’ll get a lot more detail over the course of the next week and really better understand what the timing will be.

QUICK: We had someone on earlier this morning who was saying, no matter what, you’ve got two good options, whatever happens. They said basically, if the deal has to get extended, they would love to see something like what JetBlue is doing right now.

In terms of extending by basically saying the dividend can get paid out and it can be taken down as part of the deal price if the deal actually goes through but they’d love to see something like that. Is that something that you all have discussed with Microsoft at this point?

KOTICK: We haven’t discussed it, you know, we didn’t get to pay the dividend this year. But I think you know, we’re we’re very focused right now on making sure that we have good briefs, that we have the the right process in place and, you know, we still have some work to do with the FTC. We have a few other countries that still need to come in. But we expect the EU will come in before May 22nd.

SORKIN: You just mentioned the FTC. There are some people who believe that the U.S. government and regulators in the U.S. have effectively outsourced the regulatory regime to Europe in this case, so they actually don’t have to make some of these decisions.

What do you think of that and just the policy broadly around how a global multinational company operates in this in this environment, but also being a U.S. based company?

KOTICK: Well, I was surprised to learn that Lina Khan and the head of the CMA had a meeting a week and a half ago in Washington.

You know, legally, you’re not supposed to be discussing active litigation. I don’t know that they did. But, you know, I think that that’s what you’re seeing now is that the CMA is being used as a tool by the FTC to be able to create these kinds of outcomes, and it this isn’t the way that they’re supposed to be operating.

QUICK: Did this come as a huge shock to you because the CMA most recently when it talked about this certainly seemed like they had softened their approach.

KOTICK: I can in our interactions with the CMA we found them thoughtful and reasonable. You know, they came to a conclusion, they started out with a conclusion that would have protected Sony’s monopoly market share, and then they ended up actually retracting that entirely.

They seem like the cloud remedies that Microsoft offered, which were very generous cloud remedies, were going to result in a favorable decision. So, their, the way that they interacted with us through the process is very different than what the outcome was.

SORKIN: If you end up having to remain independent, you collect $3 billion. What is the comp—

QUICK: As a breakup fee.

SORKIN: As a breakup fee from Microsoft, what do you do with that $3 billion? What does the company look like?

By the way, there have been instances we were actually talking about Sprint, T-Mobile, that you could say that Sprint on the back of or rather T-Mobile on the back of AT&T giving them a massive breakup fee, actually led to the creation of this whole other giant, took took them 10 years, but sort of a remarkable growth story.

So what does Activision look like to you independently and what do you do with that money?

KOTICK: Well, I think our first focus is trying to get the deal done, which I think is in the interest of the industry of competition. If it weren’t to get done, you know, by the end of the year, I think we’ll be sitting on something like $18 billion of cash.

And, you know, we’ve, I think if you look at our 30-year history, we have deployed capital for the benefit of our shareholders very well and we’ll continue to do that.

JOE KERNEN: Spread that around.

SORKIN: But do you think—

QUICK: The $18 billion?

SORKIN: The other issue is in this regulatory environment, could you take any of that $18 billion of cash and go actually make a big acquisition of or do you think either in the, in the UK or whether it’s the FTC or whomever that we’re an environment now where dealmaking is so challenged?

KOTICK: I think at some point, you’re gonna start to see the regulator’s realize that we’re seeing enormous amount of high paying jobs getting lost from tech companies. You’re starting to see the foreign competitors, I look at Alibaba’s breakup.

Alibaba now has six separate companies, each of which is very well situated to compete effectively on the globe in the global market, including in games. I look at ByteDance, Tencent. These are the best companies in their industries in the world.

You know, I think the estimates for ByteDance operating profits this year are $30 billion. They have exceptional talent, technology. For American companies to be able to effectively compete we have to be able to have consolidation and have these kinds of mergers.

QUICK: Does that mean that if the Microsoft deal falls apart, you can’t go it alone. You would want to partner up or to buy someone or what happens?

KOTICK: Look, we’re we’re a strong company. And I think, you know, whether the deal goes through or not and we have every expectation of it going through but if it does not, we continue to operate as an independent company.

It just gets more challenging when you’re operating in a global market where in Japan, you don’t have free access to the consumer, where in China, you have to enter into a joint venture to be able to operate. You know, fair competition should start in the in the countries that we operate in, like the UK and the U.S.

And I think that, you know, we shouldn’t be more focused on things like a reciprocal trade framework that will actually allow us to compete in countries like China and in Japan more effectively. Not preventing competition.

QUICK: Let’s ask about some of those numbers. Let’s see. Activision segment alone, revenue was up 28%, Blizzard segment revenue up 62% year over year in the first quarter, both those numbers.

What’s going on, what’s happening, who are your strong players, and I mean there was an expectation for a while that this was a Covid surge, and then people went back to work and stopped playing games. That doesn’t look like it.

KOTICK: No, the results were strong. Our business is strong. I think, you know, we remain focused on the franchises that have the greatest opportunities. It’s one of the things that we’ve done successfully for a long time. So, you know, business continues to be to be strong, and I think you’ve had dynamic shifts in some parts of the marketplace, but overall, I think our business will continue to grow.

KERNEN: Golf game is still bad?

KOTICK: It’s terrible.

SORKIN: That’s a good sign. I have one one sort of last regulatory question because I think it matters to the technologies, it matters to all of business which is there’s a view that this administration in the United States is more very challenging against dealmaking and transactions and the like.

And that somehow, there’s a lot of folks who think if you get to 2024, if that administration were to change, that somehow the floodgates would open and the world would would be a different place.

But at the same time, you start to look at some of the Republicans whether President Trump becomes the president again, or if DeSantis or the populist sort of Republicans were to become the president or take the administration, it’s not clear that things would open up,

KERNEN: Disney’s a one off, they’d be back, they’d be—

SORKIN: But the question is whether it would open up and be different.

KERNEN: It would be.

SORKIN: What does Bobby think about that?

KOTICK: Well, you know, I think we—

KERNEN: Careful.

KOTICK: Well, here’s what I have to say, there are people in this administration like Gina Raimondo, who are advancing the agenda of American business and doing it very, very effectively.

But I would say they, you know, she is the exception and I think that we seen these regulators like Lina Khan, who, you know, ideology shouldn’t play a role in the functioning of the FTC.

And we’re missing the opportunities, you know, when we’re protecting foreign companies who have free access and open access to our markets, and we’re handcuffing American companies. That isn’t going to serve the interest of America.

QUICK: Bobby, I want to thank you for being with us today. Bobby Kotick.

KOTICK: Thanks for having me.