Hey there! Did you hear the news? The U.K.’s antitrust watchdog has rejected Microsoft Corp.’s $75 billion deal to buy game maker Activision Blizzard Inc. It’s like the CMA is playing a game of “keep away” with Microsoft, and they’re not having it. The CMA has been reviewing the deal for months and just isn’t convinced that Microsoft’s proposal will ease competition worries. In fact, they think it poses a threat to the U.K.’s gaming industry. Ouch, that’s got to sting.
But wait, there’s more! This decision could prevent the deal from closing altogether because it’s not practical for a combined Microsoft-Activision to operate completely outside the U.K. market. The U.S. Federal Trade Commission and European Union regulators are also scrutinizing the deal. This thing is like a bad rash that just won’t go away.
The U.K. regulator is becoming more active on the global stage, and Microsoft’s deal is just the latest victim. Microsoft says they’re going to appeal the decision and stand by the deal, but antitrust lawyers say the threshold for overturning a CMA ruling is high. It’s like trying to climb Mount Everest in a pair of flip-flops.
Investors were surprised by the rejection, and Microsoft’s stock rose 7% in premarket trading shortly after the announcement. Meanwhile, shares of Activision dropped more than 10%. Investors could also be reacting to the cost savings expected should Microsoft walk away from the Activision deal. If they can’t buy it, why not just make their own?
Under the terms of the deal, Microsoft would be required to pay Activision a reverse termination fee of $3 billion if the merger agreement is terminated due to a judgment or order arising from antitrust laws. That’s a lot of dough. Microsoft announced its plans to buy Activision in January 2022 and valued the deal at $69 billion after adjusting for the videogame publisher’s net cash. The companies had planned to close the transaction by the middle of this year.
The European Commission, the EU’s antitrust watchdog, has set a deadline of May 22 for its own ruling. Meanwhile, the FTC, which sued Microsoft to block the deal in December, has scheduled a hearing for the case in its administrative court for August. It’s like a game of legal whack-a-mole.
All three regulators raised concerns that the transaction could allow Microsoft to control how consumers access Activision games such as “Call of Duty,” potentially reducing competition in the global videogame industry. But in March, the CMA narrowed the focus of its probe to the nascent cloud-gaming market, removing previous concerns that the deal could lessen competition in the established and much larger console-gaming market.
The CMA said in its decision that the deal would alter the fast-growing cloud-gaming market and lead to less innovation and choice for U.K. gamers. It’s like taking away all the fun from a birthday party.
The antitrust watchdog also said an independent inquiry group found that Microsoft would have the incentive to withhold Activision’s games from competitors after the merger and that the commitments Microsoft made to constrain such behavior would have been ineffective. It’s like saying, “Oh sure, we’ll play nice” and then not playing nice at all.
Microsoft Vice Chair and President Brad Smith said the company remains fully committed to the acquisition. He said the ruling would discourage technology innovation and investment in the U.K. and is a rejection of what he referred to as a pragmatic path to address the agency’s competition concerns. It’s like saying, “Come on, guys, can’t we all just get along?”
Leave a Reply