UK regulator says Microsoft and Activision exploring changes to $75 billion deal

Microsoft and Activision Blizzard are exploring a modified version of their $75 billion merger to appease UK regulators, as the companies get closer to completing a deal that looks set to transform the global video gaming industry. Is.

The UK’s Competition and Markets Authority said on Wednesday that the companies “may choose to restructure” the acquisition and were “ready to engage with them on this basis”, although it stressed that any new deal could lead to a new antitrust case. Can start investigation.

The CMA statement represents a surprising lifeline from the regulator, which blocked the deal in April, and came a day after the US Federal Trade Commission challenged the deal in court.

“The competition lawyers were surprised,” said one lawyer. “The fact that it went after the US (ruling) so swiftly. , , It seems as though the CMA had the courage of its convictions until yesterday.”

Meanwhile, Microsoft’s willingness to consider changes to the deal to address any remaining UK objections underlines the tech giant’s determination to strengthen its position in the global video game industry with revenue, PwC said. It is expected to reach $227 billion this year.

The regulator’s decision in April drew a strong reaction from Microsoft and Activision, which suggested they could withdraw from the UK as a result and warned the UK was “closed for business”.

But Microsoft chairman Brad Smith told the Financial Times in June after a meeting with UK Chancellor Jeremy Hunt and other Treasury officials that “hope remains” for Microsoft’s future in the UK.

“I am looking for solutions. If the regulators have any concerns, we want to address them. If there are problems, we want to solve them. If the UK wants to introduce regulatory requirements beyond those of the EU, we want to find ways to meet them,” he said.

Hunt’s aides said the chancellor had clearly stated in his meeting with Smith that he would not interfere with the CMA’s decision.

“He said the fact that in the UK we have independent regulators – free from political lobbying and interference – is one of the advantages of our system,” said an aide to Hunt. “You have equal opportunity.”

However, the UK government has expressed concern over how the CMA has functioned, its broader position on tech deals, and how it could affect the investment landscape for smaller companies in the country, said a person familiar with the meeting. Said.

Aides to Prime Minister Rishi Sunak and Hunt insisted there was no pressure on the CMA to change its stance on Tuesday. A government insider said, “He was the last man standing, so he probably thought it was a good idea to try to sort it out.”

With the breakdown of regulatory hurdles to the proposed merger, Microsoft and Activision are rushing to decide on agreements that could please the CMA as the proposed deadline for completing the transaction draws closer on Tuesday. Microsoft may have to pay a break fee of up to $3 billion if the deal fails.

Investors in Activision and Microsoft have suggested the deal could be closed in the first phase of the CMA’s new investigation if the two companies commit to operating as separate entities until the investigation is concluded.

“The CMA needs to walk very carefully between appearing reasonable here and appearing vulnerable,” said Tom Smith, former CMA counsel now at Geradine Partners. However, he added that the CMA had “no choice but to consider a new deal”.

Other tech companies looking to complete deals are being closely watched, such as Adobe, whose proposed $20 billion bid for design software company Figma is also being scrutinized by the CMA.

The CMA has generally been unwilling to accept so-called pragmatic measures such as licensing deals as a solution to its concerns about mergers. But investors and analysts said it was unclear which assets Microsoft would be willing to lose.

Microsoft has shown particular interest in Activision’s mobile business and announced plans to launch a new app store for games on iPhone and Android phones early next year if the deal is approved.

Microsoft gaming chief executive Phil Spencer told the FT in March that it would be “very modest” to adapt Xbox’s existing Game Pass, where users pay a subscription fee to access a collection of console games, to mobile. However, Spencer stated that it needed Activision’s mobile titles to fill out its portfolio of games.

Activision’s flagship title, Duty, and blizzard diablo, Available on console, computer and mobile and hence, it would be difficult to separate them. However, the mobile company King lagged behind in the three months till April this year. candy Crush Saga, Activision was the primary earner for Blizzard, with $739 million in revenue, more than either the Activision or Blizzard divisions combined.

The CMA suggested in February that structural measures could include a “partial divestment of Activision Blizzard”, which would include a sale. Duty

“The real beef is around the cloud gaming business, but it’s hard to isolate,” said Ben Barringer, an analyst at Quilter Cheviot. “Microsoft wants to offer a unified global service and be the Netflix of cloud gaming – it can’t become that if they make it.”

Brussels approved the deal with a commitment from Microsoft to license any cloud games on a rival platform for 10 years. This was offered to the CMA by Microsoft in previous talks.

The CMA and the companies involved have requested a stay of legal proceedings after the parties appear at the Competition Appeal Tribunal at the end of the month to challenge the regulator’s decision.

However, the tribunal would have to approve the request, and the FTC can still appeal the judge’s Tuesday ruling. Activision’s share price jumped 10 percent to $90.99 on Tuesday, well within 5 percent of Microsoft’s all-cash offer.

Additional reporting by Tim Bradshaw and Richard Waters