Microsoft's revised Activision deal under review, but UK regulator ‘stands by’ original veto, Cardell says

Microsoft’s restructured deal to buy Activision Blizzard is “substantially different” from the original plan vetoed by the UK merger regulator, its top enforcer told MLex, and accepting it for review doesn't represent any kind of “change of heart.” The Competition and Markets Authority's chief executive, Sarah Cardell, stressed that the original prohibition stands, and that while her agency would consider the new deal, restructuring transactions following a veto was not a course she would “recommend or advise.”

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22 August 2023
Andrew Boyce and Lewis Crofts

Microsoft’s restructured deal to buy Activision Blizzard is “substantially different” from the original plan vetoed by the UK merger regulator, its top enforcer has told MLex, and accepting it for review doesn't represent any kind of “change of heart.”

The Competition and Markets Authority's chief executive, Sarah Cardell, stressed that the original prohibition stands, and that while her agency would consider the new deal, restructuring transactions following a veto was not a course she would “recommend or advise.”

Reworking a deal in such a way was “a very lengthy process” and was not “an efficient way” to address competition concerns, Cardell told MLex in an interview.

“My advice to companies who are watching this would be, very clearly, that where companies believe they have a solution that can address our concerns they should be bringing that forward fully and early in the original investigation, and not waiting for a late stage opportunity to bring that to the table.”

Microsoft saw its acquisition of Activision Blizzard blocked by the CMA in April over concerns that it could harm competition in the emerging market for cloud gaming services. The regulator said Microsoft would have too much control over how popular games such as Call of Duty are licensed and that promises by Microsoft to make those games available on rival platforms were insufficient.

The tech giant tried to persuade the CMA not to implement a final order blocking the deal by pointing to new circumstances, including the European Commission granting conditional approval for the deal and enforcing Microsoft’s licensing agreements with rivals.

Today the CMA said it had rejected those arguments and had adopted its order underpinning the veto.

But Microsoft has submitted a “new, restructured deal” for review that would see it not acquire the cloud gaming rights for popular Activision titles such as Call of Duty outside the EU. They would instead be divested to Ubisoft, a French video games publisher.

The CMA said it would now conduct a phase I review of the restructured deal and make an initial decision by Oct. 18.

Cardell said the CMA had not shifted its position on the merger. Rather, it had finalized its order underpinning the veto and stood by that decision. As a result, Microsoft had “taken it upon themselves … to put forward a quite significantly restructured deal.”

“Where we see the movement is on Microsoft’s side,” the CMA chief said.

The UK regulator had confirmed that Microsoft’s arguments of changed circumstances didn’t provide a basis for revisiting the decision. “It was a pretty unusual move by Microsoft to raise the arguments in that way and the [CMA inquiry] group have been clear in confirming that that didn’t alter their assessment of that original deal.”

The CMA is only just starting its new investigation, and it has not reached a final decision. But what was on the table was “substantially different” from the original deal because Microsoft was giving up the cloud streaming rights to Activision Blizzard content in relation to current games and new ones released over the next 15 years, Cardell said.

It was “effectively putting Ubisoft in the shoes of Activision pre- the transaction because Ubisoft is then able to control how those rights are utilized.”

Cardell noted that “lifting and shifting” the licenses to Ubisoft would mean it was in the driving seat to offer different kinds of subscriptions and licenses to different platforms, including those not on Windows.

The CMA’s original concern was the connection between Microsoft and Activision Blizzard in the cloud sector. The restructured deal severs that cord.

Cardell defended the “integrity” of the in-depth probe procedure that applied to the transaction and said the “process holds good.”

Microsoft and the CMA are still in court over the original veto, although that litigation is currently on hold due to the restructuring proposal.

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