Microsoft’s Activision deal chances evaporate after UK blow

London: The UK antitrust watchdog’s decision to block the biggest-ever gaming deal has all but closed off any path forward for Microsoft’s purchase of Activision Blizzard.

The Competition and Markets Authority said Wednesday that its concerns over the $69 billion takeover can’t be solved by any proposed remedies and the only solution is to prevent the deal. Microsoft and Activision have pledged to appeal the decision, but the UK block, combined with US Federal Trade Commission’s opposition to the merger, means the transaction has slim chances.

The UK’s decision is globally binding and has the power to stop the deal altogether if the appeal process is unsuccessful for Microsoft.

The European Commission has yet to weigh in. The EU could diverge from the CMA’s findings, but it’s unclear how the deal could be unbundled to satisfy all regulators. The EU decision is expected by May 22, but by that point it may be moot, said Tom Smith, a competition lawyer at Geradin Partners and former CMA director.

“Microsoft worked hard to appease the CMA, but in the end the CMA’s decision purports to prohibit the deal on a worldwide basis,” he said, pointing to the example of Meta Platform’s unsuccessful effort to buy GIF search engine Giphy, which the regulator blocked for the second time last year after the social media platform lost its appeal.

The biggest challenge may be one of timing. Microsoft and Activision Blizzard’s merger agreement expires on July 18. Though the agreement can be extended, Activision Blizzard could walk away with a $3 billion break-up fee. Should the companies stay the course, they now face a lengthy road of litigation on two continents.

When the FTC sued to block the merger in December, Microsoft maintained it still had avenues for approval. The Xbox maker’s plan was to persuade UK and EU authorities to accept a global behavioral remedy, then return to negotiations with the FTC. If the US regulator refused to budge, the company wagered it could persuade a US judge that those binding global remedies resolved the competition concerns.

That strategy has suddenly become much more challenging with the UK decision reinforcing the FTC’s concerns. As it stands, the FTC trial isn’t set to begin until August 2 and isn’t likely to produce a decision till the end of the year.

The UK appeal process is also drawn-out and rarely changes the outcome as the tribunal only reviews the decision’s legality. When Meta appealed a UK order to unwind its acquisition of Giphy, for example, the Competition Appeals Tribunal took eight months to issue a decision and sent the case back to the UK regulator, which upheld the block.

“Whether the CMA’s decision causes the entire deal now to fall apart must be open to question, but no doubt the parties’ advisers will be thinking very carefully about how they might be able to salvage it,” said Alex Haffner, competition partner at UK law firm Fladgate.