UK regulators open door to quick Microsoft-Activision deal

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UK regulators have opened the door for Microsoft and Activision Blizzard to close their $75bn video games deal within as little as six weeks, as the companies scramble to restructure their agreement to satisfy competition concerns.

The UK’s Competition and Markets Authority on Friday said it would push back a July 18 deadline for it to block the deal until August 29, after receiving a “detailed and complex submission from Microsoft”. The company argued that the agency should re-examine its conclusions due to “material changes in circumstance and special reasons”.

That timetable could allow Microsoft to complete the merger more quickly than the CMA had suggested earlier this week, when the agency said a restructured deal would trigger a new investigation, likely taking several months.

The CMA’s move to reopen deliberations about its final decision, which is unusual so late in the regulatory process, revives the potential for Microsoft to resolve the watchdog’s concerns about competition in the cloud gaming market. The CMA did not provide details of Microsoft’s submission, which was made more than a month ago.

The extension comes as Microsoft explores ways of restructuring its cloud gaming business in the UK to appease the CMA, which ruled in April that combining the maker of Xbox consoles with the creator of hit games including Call of Duty and Diablo would give it “the ability to undermine new and innovative competitors”.

The UK competition regulator’s objections are seen as the last big legal hurdle facing the world’s largest video games deal, after US courts earlier this week sided with Microsoft to reject an initial attempt by the Federal Trade Commission to block the merger.

The merger agreement between Microsoft and Activision Blizzard is due to expire on July 18, which would allow either company to walk away from the deal and triggering a $3bn break fee. However, after this week’s legal victory in the US courts and a potential lifeline in the UK, people close to the companies say they are likely to agree an extension to the deal early next week.

“Things are moving quite quickly,” said one person close to the negotiations.

One potential concession to the CMA under consideration by Microsoft is a move to sell cloud streaming rights to its catalogue of games to another provider in the UK, according to people familiar with the discussions. The arrangement might see Microsoft in effect exit the cloud gaming market in the UK or hand over operations of a games streaming platform for its Xbox console to a third party.

Microsoft has sounded out potential investors and operators about such a deal, which might assuage the CMA’s concerns that the Xbox maker would have too much control over the nascent market for cloud gaming.

Bloomberg earlier reported details of the cloud discussions. Microsoft and Activision Blizzard declined to comment.

Gareth Sutcliffe, analyst at Enders Analysis, said that such a deal would be “really clunky” for consumers but “might be a way around the CMA”. “Microsoft will be running the numbers for a UK carve-out that will please the CMA,” he said. “They would be looking at least-worst options.”

Additional reporting by Kate Beioley in London and Richard Waters in San Francisco