Microsoft, Activision give themselves three more months to close $68.7BN mega-merger

Microsoft and Activision have jointly agreed to extend the deadline to complete their mega merger for a further three months in order, they say, to allow time to resolve “remaining regulatory concerns”.

The original deadline for Microsoft to close the $68.7 billion acquisition of Activision it announced back in January 2022 was July 18 (yesterday). But the pair have agreed a new date of October 18 to complete the transaction.

“Microsoft and Activision Blizzard have jointly agreed to extend the merger agreement deadline from July 18, 2023 to October 18, 2023, to allow for additional time to resolve remaining regulatory concerns,” they wrote in a press release about the merger agreement extension.

The agreement also sets out two additional earlier deadlines, of August 29 and September 15, when termination fees payable to Microsoft — i.e. in the event the deal does not close — will increase from $3BN to $3.5BN and from $3.5BN to $4.5BN respectively.

But the pair are evidently hoping the transaction will end in successful closure, not termination.

In a memo to staff today, Microsoft’s Xbox chief Phil Spencer wrote:

The $68.7BN mega merger has been complicated by regulatory opposition in the US and UK — including a decision by the UK’s competition watchdog, the Competition and Markets Authority (CMA), in April to block the acquisition, citing concerns that it would substantially weaken competition.

The US’ Federal Trade Commission is also opposed to the merger and has sued to block it. But, earlier this month, a federal court judge dismissed its arguments that the deal would be anti-competitive and ruled the regulator cannot block it.

The other major market regulator, the European Union’s competition commission, greenlit the acquisition in May. So the UK decision is the only major obstacle standing in the way of the deal closing at this point. Which means the UK watchdog has found itself in the uncomfortable position of being isolated on the global stage.

Earlier this week, the CMA agreed to extend its own final deadline on the case file to consider what it described as “detailed and complex” submissions by Microsoft.

In the wake of the FTC’s action being blocked in the US, both sides also requested a pause in Microsoft’s appeal against the CMA’s final decision in the UK.

The CMA has also signalled a possible route out of the impasse — if Microsoft and Activision choose to restructure the deal — which it has said could lead to a fresh merger investigation, while warning it cannot re-open a final decision after the fact. But a way forward to reworking the unfavorable outcome has been signposted.

In the meanwhile the CMA’s final decision — that the acquisition would “substantially weaken competition” in the cloud gaming market — does still stands. (While the watchdog had also had early worries the deal could harm UK console gamers by reducing competition it dropped that concern, narrowing its focus on cloud gaming.)

“Microsoft and Activision have indicated that they are considering how the transaction might be modified, and the CMA is prepared to engage with them on this basis,” the CMA said last week, adding: “These discussions remain at an early stage and the nature and timing of next steps will be determined in due course. While both parties have requested a pause in Microsoft’s appeal to allow these discussions to take place, the CMA decision set out in its final report still stands.”

The UK market is large enough that Microsoft and Activision will want to find a solution that passes muster with the CMA to allow them to keep doing business.

A report by Bloomberg last week suggested the companies are considering giving up some control of their cloud gaming business in the UK to appease the CMA.