The Microsoft-Activision Deal Is Far From Done. The Winners and Losers Are Already Emerging.

JPMorgan analysts in Europe certainly think so, highlighting that the deal, along with Take-Two’s recent deal to buy mobile game developer Zynga , shows appetite for consolidation. They see Assassin’s Creed maker Ubisoft and Poland’s CD Projekt as being “attractive to potential bidders.”

But not everyone is a winner. Sony Group ’s stock took a hammering, plunging 13% in Tokyo trading Wednesday. The deal would make Microsoft the third-largest gaming company by revenue, as the company itself pointed out, behind Tencent Holdings and Sony.

Weighing on Sony is the fear that Microsoft could make popular Activision games, such as Call of Duty, exclusive to its Xbox platform and not available on Sony’s PlayStation. Such a move would be a regulatory minefield given the increased antitrust scrutiny in Washington, not to mention Brussels.

The potential deal is also a warning shot to Apple , given Activision’s mobile gaming portfolio, which includes the popular Candy Crush and a mobile version of Call of Duty. Apple has had its problems in mobile gaming of late, notably its legal battle with Epic Games over Fortnite.

—Callum Keown

*** Join MarketWatch personal-finance editor Quentin Fottrell as he talks to Dr. Gregory Poland, who studies the immunogenetics of vaccine response at the Mayo Clinic, about the trajectory of the Covid-19 pandemic. Sign up here.

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Microsoft’s Activision Blizzard Deal Likely to Draw Scrutiny

Microsoft’s $68.7 billion all-cash deal for Activision Blizzard will court regulatory scrutiny. The deal adds popular gaming series such as World of Warcraft, Diablo, Call of Duty, and global eSports activities through Major League Gaming to Microsoft’s Xbox console business and its own games such as Minecraft.

• Microsoft said Activision CEO Bobby Kotick would stay on, but The Wall Street Journal reported he would likely leave after the deal is complete. The company didn’t comment on the Journal’s report. The Activision business will report to Microsoft Gaming CEO Phil Spencer.
• California regulators sued Activision in July, accusing the company of sexual harassment and gender pay disparity. The Journal investigated Activision’s workplace issues in November, and nearly one-fifth of Activision’s 10,000 employees signed a petition asking Kotick to resign.
• Microsoft’s gaming strategy is focused on expanding its Game Pass subscription business, which gives 25 million gamers access to a catalog of games for a monthly fee. CEO Satya Nadella has called Game Pass a “Netflix for Games.”

What’s Next: Microsoft is the world’s second-largest company behind Apple. Regulators are likely to take a close look at the deal as games such as Call of Duty are popular on the Sony PlayStation, the main rival to Microsoft’s Xbox. Regulators may want assurances Activision games won’t be limited to Xbox.

—Janet H. Cho

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Treasury Yields Hit Highest Levels Since Pandemic’s Start

Yields of U.S. Treasuries from 2- to 30-year maturities reached their highest points since at least the start of the pandemic on Tuesday, with the benchmark 10-year rising to 1.84%, its highest level since January 2020. Stocks, especially tech shares, dropped.

• One explanation is that investors are selling bonds for fear rising interest rates will erode the future value of their coupon and principal payments. The market is forecasting four rate increases by the Federal Reserve this year, with the first possibly coming in March.
• That is more than the three increases the market forecast at the end of last year, while expectations for inflation haven’t budged much. The inflation forecast is for a 2.5% annual pace over the next decade, down from 2.8% forecast in November.
• BCA Research said Treasury returns were only positive in one of the Fed’s past three cycles of raising rates, when the central bank moved slowly from 2015 to 2018 as the U.S. emerged from the financial crisis.
• Wall Street agrees that Treasury prices, which move inversely to yields, will continue to fall. “Fallen angel” corporate bonds, issued by companies that have investment grade ratings that fell to junk, have prices that are less sensitive to interest-rate changes.

What’s Next: The Fed is also considering shrinking its bond portfolio, accumulated over months as it bought bonds to support the economy through the pandemic. Paring back bondholdings drives less money into the bond market, lowering prices and lifting yields.

—Liz Moyer and Alexandra Scaggs

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AT&T and Verizon Agree to Avoid Airports in 5G Rollouts

AT&T and Verizon Communications will proceed to launch wireless spectrum for their 5G wireless networks today, except for some towers near airports, as regulators ask for more time to analyze how and whether the frequencies affect the equipment aircraft use to land.

• President Joe Biden said the delay of the rollout near airports will help avoid “potentially devastating disruptions to passenger travel, cargo operations, and our economic recovery,” while allowing 90% of the rollout to proceed as planned.
• AT&T and Verizon bought the mid-band spectrum licenses last year as a vital part of their next-generation networks. The Federal Aviation Administration is studying whether the frequencies interfere with equipment used in low-visibility landings.
• An industry group representing American Airlines , Delta Air Lines , and United Airlines told federal regulators that unless planes flying out of major airports are cleared for flights, “the vast majority of the traveling and shipping public will essentially be grounded.”
• AT&T and Verizon representatives said they agreed to defer the installation but expressed frustration that regulators and the airlines have not been able to resolve the issue, pointing out that 5G technology has rolled out in 40 countries without disrupting aviation.

What’s Next: Possible technical fixes include turning off the portion of the spectrum closest to the frequencies used by radio altimeters near airports, cutting the power of network equipment in those areas, and having antennas direct energy toward the ground rather than to overpassing airplanes.

—Nicholas Jasinski and Janet H. Cho

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ASML Earnings Show Demand for Chips Remains High

Earnings from ASML reveal the world’s thirst to manufacture semiconductors is still intense as supply remains tight. The Dutch group, a critical supplier of equipment to the chip industry, posted strong fourth-quarter earnings Wednesday and said demand continues to outpace manufacturing capacity.

• ASML reported quarterly net income of €1.8 billion ($2 billion) on sales of €5 billion, delivering earnings per share of €4.39. Analysts had expected income of €1.6 billion—and per-share profit of €3.71—from sales of €5.1 billion. The company’s U.S.-listed stock was more than 3% higher in premarket trading.
• Billing itself as “the most important tech company you’ve never heard of,” ASML is one of Europe’s largest by market capitalization. It holds a near-monopoly on a critical system in the chip making process, supplying the likes of Intel , TSMC , and Samsung .
• “We experienced higher demand for our systems than our production capacity can accommodate,” said Peter Wennink, the company’s president and CEO. “Very strong demand in end markets puts pressure on our customers for more wafer output.”

What’s Next: The global shortage of chips amid the pandemic has highlighted ASML’s critical role in the global supply chain. And the company sees a strong 2022 ahead, with sales expected to grow in the range of 20%—even accounting for the impact of a recent fire at one of its sites.

—Jack Denton

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Pfizer’s Covid-19 Pill Effective Against Omicron in Lab Tests

Pfizer said its Covid-19 pill, Paxlovid, was effective against the Omicron coronavirus variant in three early but promising laboratory tests. The Food and Drug Administration has approved the pill for newly infected people at high risk of developing severe illness, to help them avoid hospitalizations.

• The U.S. has purchased 20 million courses of treatment, with the first half of the order to arrive by June. But even with expanded manufacturing capabilities, Pfizer said the pills take about nine months to make. Pfizer aims to churn out about seven million courses worldwide this year.
• The U.S. reported nearly 718,000 new Covid-19 infections on Tuesday, and 1,122 deaths, according to Johns Hopkins University. Nearly 153,000 people are hospitalized, including more than 25,000 in intensive care unit beds.
• The federal government’s covidtests.gov website started accepting orders for free Covid-19 rapid tests Tuesday, a day before today’s official launch. People can request four free tests per residential address, as part of the Biden administration’s plan to distribute one billion rapid tests.
• The free tests are in addition to the 375 million at-home rapid tests Biden said would be on the market in January, as well as the tens of millions being sent to K-12 schools, rural health and community centers.

What’s Next: Biotech Moderna
‘s CEO Stéphane Bancel said the company hopes to launch an approved combination Covid-19 and flu vaccine as early as fall 2023. The single seasonal booster shot would also protect against respiratory syncytial virus, a common virus that causes cold-like symptoms.

—Janet H. Cho

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U.K. Inflation Jumps to 30-Year High

Inflation in the U.K. accelerated at the fastest pace in nearly three decades in December, exceeding expectations and putting further pressure on the Bank of England.

• The consumer-price index rose 5.4% on an annual basis, up from 5.1% in November, according to the Office for National Statistics. A Reuters poll of economists had expected a 5.2% increase.
• The inflation news came after data released Tuesday had shown that U.K. labor markets kept tightening further, with headline unemployment down to 4.1% and unprecedented high vacancies.
• As in previous months, food and energy prices explained much of the inflation increase, but as noted by Sandra Horsfield of Investec Economics, the “upside surprise was in higher core price pressures,” notably for items such as clothing, footwear and furniture.
• The yield on the 10-year gilt rose to 1.27% Wednesday, its highest in more than two years, with the pound up 0.1% against the dollar.

What’s Next: Last month the Bank of England became the first major central bank to raise interest rates since the beginning of the pandemic. With inflation still running high and tight labor markets, there is an expectation it will raise rates by another notch at its February meeting.

—Pierre Briançon

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Dear Quentin,

My divorce decree states that I have exclusive possession of the marital residence. The deed has my ex-husband’s name, and my name as his wife. I approached my ex-husband to sell the house.

He has been absent, without any knowledge of his whereabouts for several decades. He has had no contact with my younger daughter after the age of two (she is now 44) and the older daughter since she was 12 (she is now 52 years old).

We were married for 11 years and had a 27-year mortgage to pay off. I remarried 36 years later, and we paid for the mortgage, child support and major repairs to the house, as well as putting my daughters through college without any student loans.

I offered the amount of money that was his share of down payment and mortgage payments. He refused and stated that he wanted the house to be sold and all proceeds to go to our daughters, and will not agree to anything else. He only lived in the house for the first four years.

Please let me know what my options are, as I have heard different answers from different attorneys and do not want to mess up with incorrect information.

—Confused and Desperate

Read The Moneyist’s response here.

—Quentin Fottrell

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—Newsletter edited by Liz Moyer, Camilla Imperiali, Steve Goldstein, Joe Woelfel, Rupert Steiner