A photograph of the entrance to Blizzard Entertainment in California. On an archway, letters spell out Blizzard
Photo: David McNew/AFP/Getty Images

And it’s still looking to reverse the already-completed deal

Microsoft reneged on promises it made in court during its Federal Trade Commission (FTC) antitrust trial in 2023 by laying off 1,900 employees in late January, according to the FTC. FTC lawyer Imad Abyad filed a letter with the U.S. Court of Appeals for the Ninth Circuit on Wednesday, effectively telling on Microsoft. “This newly-revealed information contradicts Microsoft’s representations in this proceeding,” the FTC lawyer wrote.

Microsoft announced on Jan. 15 that it was laying off 1,900 workers from its gaming division — around 8% of that part of the company. A large portion of those layoffs were at the newly acquired Activision Blizzard. The percentage of Activision Blizzard layoffs has not been made public, but at least 899 of that 1,900 worked out of Activision Blizzard’s California offices, according to public records.

“As we move forward in 2024, the leadership of Microsoft Gaming and Activision Blizzard is committed to aligning on a strategy and an execution plan with a sustainable cost structure that will support the whole of our growing business,” CEO Phil Spencer said at the time. “Together, we’ve set priorities, identified areas of overlap, and ensured that we’re all aligned on the best opportunities for growth.”

The problem with that, Abyad wrote, is that Microsoft told the court during its FTC hearings that Microsoft and Activision Blizzard would be largely independent from each other. He then provided several examples of places where Microsoft said 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” — that is, that Activision Blizzard would remain independent.

The FTC lawyer also cited in the letter Microsoft’s intention “to maintain the pre-merger status quo” with its “vertical acquisition of Activision,” specifically contrasted with a horizontal merger, where companies often “eliminate redundancies.” Abyad’s point is that Microsoft’s stated plan to work as a vertically merged “limited-integration studio” implies it wouldn’t need to eliminate redundancies and lay off workers — at least in the FTC’s reading.

Not only are the layoffs themselves a problem, but Abyad also called out Spencer’s statement that the layoffs reduced “areas of overlap” between the two companies — which he said is inconsistent with previous statements made in court.

The $68.7 billion Microsoft and Activision Blizzard merger is already complete, so why is the FTC doing this? The FTC filed to appeal the decision to approve the merger in December, and is still hoping to stop the deal — or rather, undo it. It’s looking for the court to pause the merger so it can complete its in-house trial.

Though getting a court to agree to that would be a major challenge, the FTC appears unfazed. It has undone mergers before, like when grocery store chain Whole Foods acquired Wild Oats Marketplace. That deal went through, but was later appealed, forcing Whole Foods to settle with the FTC by giving up the Wild Oats brand name and 32 stores in 2009, according to Reuters. The likelihood of this happening with Microsoft is slim. But if the FTC did win an appeal, it’s arguing that these layoffs make “effective relief” much harder.

San Francisco’s Court of Appeals hasn’t announced a decision.

Update (Feb. 8): Microsoft responded to the FTC’s filing with its own letter to the U.S. Court of Appeals for the Ninth Circuit in San Francisco, denying that its layoffs proved it went back on its word in court. Microsoft lawyer Rakesh Kilaru wrote that Microsoft was already considering layoffs before the merger.

“The recent announcement thus cannot be attributed fully to the merger,” Kilaru wrote. “More important, Microsoft continues fully to stand behind its representations to this Court. To be clear, while some overlap was identified and some jobs were eliminated, [...] Microsoft has structured and is operating the post-merger company in a way that will readily enable it to divest any or all of the Activision businesses as robust market participants in the unlikely event that a divestiture ultimately is ordered. This is precisely what Microsoft represented previously.”

A Microsoft spokesperson also provided Polygon with the following statement:

In continuing its opposition to the deal, the FTC ignores the reality that the deal itself has substantially changed. Since the FTC lost in court last July, Microsoft was required by the UK competition authority to restructure the acquisition globally and therefore did not acquire the cloud streaming rights to Activision Blizzard games in the United States. Additionally, Sony and Microsoft signed a binding agreement to keep Call of Duty on PlayStation on even better terms than Sony had before.