Why Microsoft’s Activision Blizzard deal could be on its last life

One thing to start: Chinese police have visited the Shanghai offices of Bain & Company and questioned employees at the US management consulting firm, in the latest case of heightened scrutiny of foreign businesses in China as tensions between Beijing and Washington rise.

In today’s newsletter

• UK regulators’ big blow to Microsoft/Activision

• Glencore finds an edge on Teck

• Berlin scrutinises a cross-border deal

Microsoft’s Activision takeover becomes a losing game

Players of Call of Duty: Modern Warfare who catch a bullet can simply reboot their Xbox and start anew.

Microsoft’s pursuit of the video game’s maker Activision Blizzard however, has just suffered a hit from regulators that it may be unable to recover from.

The UK’s Competition and Markets Authority on Wednesday blocked the US software giant’s $75bn acquisition of Activision, thrusting the mega-deal into a state of uncertainty and dealing a blow to merger arbitrage traders who had bet the transaction would go through.

Activision chief executive Bobby Kotick didn’t take the decision well. He said the ruling “contradicts the ambitions of the UK to become an attractive country to build technology businesses” and labelled it a “disservice to UK citizens, who face increasingly dire economic prospects”. 

Microsoft and Activision said they would fight the decision — but is it really worth it?

One lawyer told DD that the companies face an uphill battle in appealing against the CMA’s ruling; its decisions are rarely overturned. Another described it as “pointless” and “time consuming”.

If they were to go down this route (while still facing separate probes in Washington and Brussels) they would go past the so-called drop dead date when the parties must close the transaction. Several traders we spoke to said it was likely Activision was going to demand a higher price from Microsoft to extend the deadline to keep the merger agreement from expiring.

But do either of the parties still need, or indeed, want a deal? Activision agreed to sell itself following allegations of widespread gender-based discrimination and harassment, which weighed on its shares and created the perfect opportunity for Microsoft to swoop in.

The company is in a stronger place since then and has the earnings to prove it.

As for Microsoft, which also reported strong first-quarter results on Tuesday, it appears to be more of a want than a need, particularly after its well-timed investment in OpenAI-owned ChatGPT earlier this year.

Shares in the company were up more than 7 per cent following the CMA’s announcement, indicating that shareholders are happy to leave the deal on the table.

Whatever happens, the saga suggests the CMA will continue flexing its broad intervention powers going forward, further damping the outlook for cross-border M&A.

“We hear very clearly that acquirers are not announcing deals because they are worried about getting blocked by the unappealable CMA,” one merger arb investor told DD.

A clear winner should the deal fall apart is rival Sony, whose PlayStation consoles would no longer be at risk of limited access to Call of Duty and other Activision titles, and whose share price had already begun to feel the pressure of consolidation in the entertainment world.

Glencore scores a point in the Teck takeover saga

The ball is back in Glencore’s court.

Canada’s Teck Resources failed to pass a shareholder resolution on Wednesday that would split the company, abandoning its plan just hours before the key vote.

That’s a significant loss for Teck. A win for the resolution would have advanced the company’s strategy of separating its metals business from its steelmaking coal unit.

A victory would have simultaneously seen off a $23bn hostile bid from the Swiss miner Glencore by rendering its plan inoperable.

Some of Teck’s shareholders criticised the company’s restructuring plan as being convoluted, and influential proxy advisers Glass Lewis and Institutional Shareholder Services had both recommended against the restructuring proposal.

And despite having the backing of Norman Keevil, the 85-year-old mining magnate who controls Teck, passing the vote would have required two-thirds approval from both the common class B shareholders and the class A supervoting shareholders.

Meanwhile, the cancellation is undoubtedly welcome news for Glencore, which revealed its merger bid for Teck earlier this month.

Glencore has spent recent weeks lobbying Teck’s shareholders to support its unsolicited bid, with its chief executive even flying to Toronto to meet shareholders.

With Teck shifting course, Glencore’s bid remains alive. The company has dangled the potential for an improved offer if Teck is willing to hold talks.

Teck’s chief executive Jonathan Price wasn’t in the mood to negotiate on Wednesday, however. “Glencore’s rejected proposals remain a non-starter,” he said.

DD presumes the mood inside Glencore, which is being advised by Citigroup and Michael Klein, is becoming more optimistic nonetheless.

A cross-border deal attracts scrutiny in Berlin

In 2018, researchers warned that the Mittelstand faced a generational crisis with no one to take over at thousands of the midsized companies that make up the foundation of the German economy.

That was the same year Allendorf-based heat pumpmaker Viessmann named a new chief executive: 29-year-old Max Viessmann, the great-grandson of founder Johann Viessmann.

Now he’s preparing to join the board of rival Carrier Global Corp, the Florida-based group that yesterday announced a €12bn cash-and-stock deal to take over roughly three-quarters of Viessmann.

For Carrier, it’s a way into what it told investors was the most exciting market for their industry. The deal was announced a week after the German government voted to ban most new oil and gas heating systems starting next year.

But the excitement over German energy policy also attracted the interest of those who drafted it.

Economy minister and deputy chancellor Robert Habeck warned the government would review the deal and ensure that the country’s energy policy “and profits generated by it continue to benefit Germany as a business location”.

Energy policy has become a sensitive subject in the country following the invasion of Ukraine, which left Germany — highly dependent on Russian gas — scrambling to secure a new way forward.

For Carrier, the possibility of regulatory scrutiny could be worth the wait. The group expects the region’s heat pump market to triple to $15bn by 2027 given the “geopolitical dynamics and [Europe’s] push for energy independence” coupled with “regulations and incentive programmes”.

The US Inflation Reduction Act helps explain the substantial premium offered by Carrier, Lex notes: the Floridian group is offering €9.6bn in cash and new shares equal to a 7 per cent stake (an enterprise value of 17 times this year’s ebitda) but will receive a generous subsidy from the US government.

Job moves

Carlyle has named former EY senior partner Sharda Cherwoo as an independent director. The move keeps its board at 13 directors after the retirement of dealmaker Peter Clare in April.

Reckitt Benckiser has tapped company insider Kris Licht, a PepsiCo and McKinsey alum, as chief executive, to replace Nicandro Durante at the end of the year.

Jupiter Fund Management chair Nichola Pease is stepping down, citing personal reasons. Chief operating officer David Cruickshank will take her place.

Scott Sheffield is retiring as head of shale giant Pioneer Natural Resources.

Allen & Overy has promoted 36 new partners.

Blackstone has tapped former United Technologies executive Ross Shuster to lead the climate technology business it recently purchased a majority stake in from Emerson Electric.

David Meyer, dean of Tulane Law School and host of Tulane’s prominent M&A, corporate and securities law conference Corporate Law Institute, has been appointed the new dean of Brooklyn Law School.

Smart reads

Keeping up with the Prigozhins The family of Russian warlord Yevgeny Prigozhin is heavily involved in his businesses, yet their luxurious lifestyle has gone mostly uninterrupted, the FT’s Miles Johnson reports.

Quiet quitting Vinod Adani has begun to retreat from his brother Gautam’s industrial empire as scrutiny mounts on the company, Bloomberg reports.

Bad break-up Tucker Carlson’s relationship with Fox News had become increasingly strained over time, insiders told the FT, painting a picture of a star whose ego got in the way.

News round-up

First Republic shares continue slide with no deal in sight (FT)

Disney sues Ron DeSantis over ‘retaliation’ for ‘Don’t Say Gay’ stance (FT)

Job cuts loom at CBI unless UK lobby group restores members’ confidence (FT)

Former Eskom chief refuses to name high-level politicians linked to corruption (FT)

KPMG fined £1mn over ‘rudimentary’ failures in TheWorks audit (FT)

UK needs change in mindset to reverse London’s IPO decline, MPs told (FT)

Win Bischoff, veteran City of London banker, dies aged 81 after a short illness (FT)