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Microsoft-Activision: UK may approve restructured deal

Microsoft’s restructured acquisition of Activision is being considered by the UK’s competition watchdog. In an update on its ongoing assessment today, it said the deal “makes important changes that substantially address the concerns it set out in relation to the original transaction earlier this year”.

The Competition and Markets Authority (CMA) blocked the $68.7 billion gaming mega-merger in April because it would weaken cloud gaming competition, but last month it opened a new investigation into a restructured deal proposal Microsoft had submitted for review and confirmed its April decision to block the merger.

The restructured deal would sell Activision’s cloud gaming rights to Ubisoft, which the CMA says “substantially addresses previous concerns and opens the door to the deal being cleared”.

It wrote that Activision’s cloud streaming rights sale to Ubisoft will prevent Microsoft from controlling cloud gaming content like Call of Duty, Overwatch, and World of Warcraft. According to the CMA, Microsoft has a strong position in cloud gaming services and could have used its control over Activision content to stifle competition and strengthen this position. Ubisoft, an independent player, will acquire Activision’s cloud streaming rights, maintaining open competition as the cloud gaming market grows.

The regulator has “limited residual concerns” about whether Activision’s cloud streaming rights sale to Ubisoft “could be circumvented, terminated, or not enforced”. But it said Microsoft has offered remedies to ensure the regulator can enforce the sale of Activision’s rights to Ubisoft, and the CMA has provisionally concluded these should resolve its remaining concerns.

This is not the final step. Microsoft’s proposed remedies are being consulted until October 6.

Colin Raftery, CMA senior director of mergers and Phase 1 decision maker, stated:

This is a new and substantially different deal, which keeps the cloud distribution of these important games in the hands of a strong independent supplier, Ubisoft, rather than under the control of Microsoft.

With additional protections to make sure that the deal is properly implemented, this will maintain the structure of the market, enabling open competition to continue to shape the development of cloud gaming in the years to come, and giving UK gamers the opportunity to access Activision’s games in many different ways, including through cloud-based multigame subscription services.

After a July deadline extension, Microsoft and Activision have until mid-month to complete the acquisition. So the deadline is close.

The CMA has until October 18 to investigate the restructured proposal. However, today’s announcement suggests Microsoft-Activision’s stars are aligning.

This unusual dance to find a new way to clear the mega-merger has felt increasingly inevitable after the UK regulator was isolated among major global regulators in blocking it.

EU authorities approved the acquisition with conditions in May. Later this summer, US courts blocked the FTC’s attempt to sue to stop the deal, leaving the CMA’s block the only major obstacle for Microsoft and Activision. Thus, Microsoft, Activision, and other deal supporters have targeted the UK regulator.

Sarah Cardell, CMA CEO, defended its approach again.

“The CMA’s position has been consistent throughout — this merger could only proceed if competition, innovation, and choice in cloud gaming were preserved,” she said. Microsoft has significantly restructured the deal to address our original concerns in response to our prohibition. Microsoft should have proposed this restructure during our original investigation. This case shows the costs, uncertainty, and delay parties can face if a credible and effective remedy option is not offered at the right time.

Reuters reported earlier this month that EU competition regulators are seeking feedback from Microsoft rivals and customers on its UK proposals to clear the deal with the CMA.

Microsoft would not acquire the cloud streaming rights to all current and future Activision games released during the next 15 years everywhere else in the world, i.e., except the European Economic Area, where those rights would be divested to Ubisoft before the deal was approved by the bloc.

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