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Microsoft and Activision are considering a restructured version of their proposed $75 billion merger. This move may initiate a new antitrust investigation in the UK after the regulator previously blocked the original deal.
The Competition and Markets Authority (CMA) stated that the only way to resume negotiations is to start fresh with a new deal. In a statement, the watchdog said, “Although merging parties cannot propose new remedies once a final report has been issued, they can choose to restructure the deal, which may lead to a new merger investigation. The CMA is willing to engage with them on this basis.”
This presents a new opportunity for Microsoft to finalize the deal amid regulatory objections, demonstrating the tech giant’s determination to solidify its position in the global video games industry. PwC predicts that industry revenues will reach $227 billion this year.
Recently, a US federal judge rejected the Federal Trade Commission’s attempt to prevent the deal from proceeding. Following this ruling, the CMA expressed readiness to consider any proposals from Microsoft regarding restructuring the transaction to address its concerns.
Some individuals familiar with the deal have suggested divestiture as a potential solution. However, it remains uncertain which assets Microsoft would be willing to relinquish. Consequently, it is unlikely that the deal will meet the proposed closing deadline of July 18. If it falls apart, Microsoft could face a break fee of up to $3 billion.
In response to the CMA’s concerns, Brad Smith, Microsoft’s president, stated, “While we ultimately disagree with the CMA’s concerns, we are considering how the transaction might be modified to address them.”
The CMA, along with the involved companies, has requested a stay in legal proceedings following their scheduled appearance in the UK’s appeal court at the end of the month. However, the court’s approval is required, and the Federal Trade Commission may still appeal the judge’s ruling from Tuesday.
On Tuesday, Activision’s share price rose 10% to $90.99, bringing it within 5% of Microsoft’s all-cash offer.
After the CMA blocked the deal in April, Microsoft and Activision hinted at potentially withdrawing from the UK. However, Smith expressed hope for Microsoft’s future in the UK following discussions with UK chancellor Jeremy Hunt and other Treasury officials in June.
“I’m looking for solutions. If regulators have concerns, we want to address them. If there are problems, we want to solve them. If the UK imposes regulatory requirements beyond the EU’s, we want to find ways to fulfill them,” Smith added.
The deal was approved by Brussels with the condition that Microsoft licenses any cloud games to rival platforms for 10 years. This offer was made by Microsoft to the CMA during previous negotiations.
According to a knowledgeable source, the CMA and the companies will enter a three-month period of talks regarding the new deal. It is too early to speculate about the specifics of the negotiation.
Interestingly, it was Microsoft itself who initiated discussions about a restructured deal with the CMA. Typically, companies do not present a reconstituted deal to the regulator to restart the process.
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