Microsoft’s Activision deal could face a new merger investigation in the UK

The UK’s Competition and Markets Authority (CMA) has warned it may need to carry out a fresh investigation into Microsoft’s planned merger with Activision Blizzard.

The CMA, Microsoft and Activision Blizzard announced on Tuesday that they’d paused legal proceedings with a view to reaching an out of court agreement on the game companies’ proposed merger, after the deal was cleared in the United States.

The watchdog said it was ready to consider any proposals from Microsoft to restructure the transaction in a way that would address the concerns that led to it blocking the deal initially.

In a follow-up statement provided to Bloomberg, the regulator said a restructured deal proposal could require a fresh investigation.

“Merging parties don’t have the opportunity to put forward new remedies once a final report has been issued, they can choose to restructure a deal, which can lead to a new merger investigation,” said a CMA spokesperson.

“Microsoft and Activision have indicated that they are considering how the transaction might be modified, and the CMA is prepared to engage with them on this basis. These discussions remain at an early stage and the nature and timing of next steps will be determined in due course.”

In April, the CMA said it was preventing the deal from going ahead due to concerns about its impact on the nascent cloud gaming market.

Prior to litigation being paused this week, Microsoft had been scheduled to appeal the decision in a court case beginning on July 28.

Microsoft wants to try and push the deal through before the current merger agreement expires on July 18, after which Activision Blizzard could walk away with a $3 billion termination fee if an extension isn’t agreed.

The CMA has a statutory deadline of 40 working days in which to finish the initial stage of its merger review process (Phase 1), meaning a fresh investigation would be unlikely to be completed before next week’s deal deadline.

Citing sources, CNBC’s David Faber claimed on Tuesday that Microsoft is offering a small and discrete divestiture to the CMA that it believes the watchdog will accept.

Further reading

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The FTC is reportedly leaning towards appealing its Microsoft – Activision loss

A judge ruled that the FTC failed to prove that the merger could harm competition

In a research note to investors, Wedbush Securities analysts Nick McKay and Michael Pachter predicted Microsoft will complete the deal before next week’s deadline.

“We expect Microsoft to move forward to close the deal by next Tuesday, and expect the company to carve out its Game Pass subscription service in the UK in order to comply with the CMA ruling blocking the merger,” they wrote.

“In that narrow decision, the CMA ruled that the deal would not substantially lessen competition in any area (PC, console or mobile), but could lessen competition in the ‘streaming video game services’ segment.

“We believe Microsoft can carve out Game Pass UK PLC as a separate operating subsidiary with an independent board charged with keeping Activision content off the Game Pass platform pending the conclusion of Microsoft’s appeal of the CMA decision. This would likely satisfy the CMA, and the deal should close by next Tuesday.”