Microsoft and Activision exploring changes to $75bn deal, says CMA

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Microsoft and Activision are exploring a restructured version of their proposed $75bn tie-up in a move that could trigger a fresh UK antitrust probe, according to the regulator that last month blocked the original deal.

The Competition and Markets Authority said on Wednesday that the only way to return to the negotiating table would be to start from scratch with a new deal.

“Whilst 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,” the watchdog said in a statement on Wednesday. “The CMA is prepared to engage with them on this basis.”

The move provides a new path for Microsoft to complete a deal that appeared stuck following regulatory objections, while revealing the tech giant’s determination to cement its position in the global video games industry with revenues that PwC expects to reach $227bn this year.

On Tuesday, a US federal judge rejected the Federal Trade Commission’s injunction to prevent the deal from closing. After that ruling, the UK’s CMA said it was ready to “consider any proposals from Microsoft to restructure the transaction in a way that would address” its concerns.

People close to the deal have suggested a divestiture could be a possible solution, but it is unclear what assets Microsoft would be willing to lose. Nonetheless, the proposed deadline for the deal closing on July 18 is unlikely to be met. Microsoft could pay a break fee of as much as $3bn if it falls apart. 

Brad Smith, president of Microsoft, said in a statement on Tuesday that, while the company “ultimately disagree[s]” with the CMA’s concerns, it was “considering how the transaction might be modified” so as to address them.

The CMA and the companies involved have requested a stay in legal proceedings after the parties were due to appear in the UK’s appeal court at the end of the month to challenge the decision.

However, the court has to approve the request, and the FTC may still appeal against Tuesday’s ruling by the judge.

Activision’s share price jumped 10 per cent on Tuesday to $90.99, within 5 per cent of Microsoft’s all-cash offer. 

Following the CMA’s move to block the deal in April, Microsoft and Activision suggested they might withdraw from the UK.

Smith told the Financial Times in June, after meeting UK chancellor Jeremy Hunt and other Treasury officials, that “hope springs eternal” for Microsoft’s future in the UK.

“I’m in search of solutions. If regulators have concerns, we want to address them. If there are problems, we want to solve them. If the UK wants to impose regulatory requirements that go beyond those in the EU, we want to find ways to fulfil them,” he added.

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

One person familiar with the negotiations suggested the CMA and the companies would now enter a three-month period of talks. The person said there was a period of time “to discuss what the CMA really wants”, adding it was “way too early to speculate what’s on the table”.

The discussions over a new deal were instigated by Microsoft, according to one person familiar with the talks. A former CMA lawyer said it was unusual for companies to bring a reconstituted deal in front of the regulator to begin the process again.