The UK is set to authorize Microsoft’s acquisition of Activision Blizzard

The $69 billion acquisition is expected to move forward with an adjusted strategy to address regulatory issues.

Microsoft’s proposed $69 billion acquisition of Activision Blizzard, renowned for games such as Call of Duty and World of Warcraft, is poised for approval by the UK competition regulator. Initially, the Competition and Markets Authority (CMA) sought to impede this groundbreaking tech deal in April, citing concerns about Microsoft’s potential dominance in the emerging cloud gaming sector.

This decision had elicited frustration from Microsoft, labeling it as one of the most challenging moments in its four-decade history in the UK. However, a revised proposal has been submitted, featuring the sale of cloud gaming rights outside Europe to the French company Ubisoft.

On Friday, the CMA stated that the sale of these rights has “significantly allayed previous concerns and sets the stage for potential approval of the deal.” The regulatory body did acknowledge the existence of “some lingering concerns” related to possible circumvention, termination, or inadequate enforcement of certain aspects of Activision’s cloud streaming rights sale.

However, Microsoft has provided assurance that the CMA can supervise the terms of the rights sale, a measure that the UK regulator has tentatively concluded will address its remaining reservations. Colin Raftery, the Senior Director of Mergers at the CMA, commented, “This signifies a new and substantially different agreement, ensuring that the cloud distribution of these essential games remains under the control of a robust independent supplier, Ubisoft, rather than being overseen by Microsoft.

By incorporating additional safeguards to ensure the proper implementation of the agreement, this will safeguard the market structure, allowing robust competition to continue shaping the landscape of cloud gaming. Consequently, this will offer UK gamers various avenues to access Activision’s games, including through cloud-based multi-game subscription services.

The CMA has launched a consultation on these measures, set to conclude on October 6th, preceding its final decision on the approval of the deal. The UK regulator appeared increasingly isolated in its position against the takeover, particularly after its EU counterparts greenlit the deal, and the US competition authority’s legal attempt to block it proved unsuccessful.

Last Friday, the CMA criticized Microsoft for postponing the submission of a workable solution to address competition concerns, emphasizing that such a proposal should have been provided much earlier in the course of the investigation.

Sarah Cardell, the CEO of the CMA, commented, “Microsoft has now extensively restructured the agreement, taking the necessary steps to address our initial concerns. However, it would have been significantly more preferable if Microsoft had put forth these changes during our initial inquiry. This case highlights the potential costs, uncertainties, and delays that parties may encounter when a credible and effective remedy is available but is not presented at the appropriate stage.

Microsoft is optimistic that the CMA’s evaluation of its new agreement can be completed before the expiration of the acquisition deal with Activision Blizzard on October 18th. In response to regulatory concerns, the company had previously extended the deal timeline, surpassing its previous largest acquisition of LinkedIn in 2016, which was set for July 18th.

Brad Smith, Microsoft’s Vice-Chair and President, conveyed optimism about this encouraging development in the CMA’s review process, stating, “We have presented solutions that we believe fully address the CMA’s remaining concerns regarding cloud game streaming, and we will persist in our efforts to secure approval for closing the deal before the October 18th deadline.

In the updated arrangement, Microsoft will abstain from obtaining cloud rights beyond Europe for current Activision desktop and console games, as well as for new games introduced by the developer in the next 15 years.

Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown, observed, “The surrender of cloud gaming rights is not an optimal concession for Microsoft, but it is a essential compromise for the approval of the deal. This seems to be the last obstacle, and approval should be forthcoming, ultimately marking a victory for Microsoft.