Britain’s Competition and Markets Authority (CMA) has made a surprising decision, blocking Microsoft’s $69 billion acquisition of Activision Blizzard, the maker of Call of Duty. The reason behind the blockage is the concern that the acquisition would hinder cloud gaming.
The regulator’s initial concerns about the consoles market, which is dominated by Sony’s PlayStation and Microsoft’s Xbox, had already been resolved. However, the dominance of consoles in the market outweighs that of cloud gaming.
Is the deal completely off the table?
No, it might not be. Microsoft has expressed its full commitment to the acquisition and plans to appeal the decision.
Microsoft believes that the regulator’s decision reflects a flawed understanding of the market.
How does the appeal process work?
Microsoft can appeal to Britain’s Competition Appeal Tribunal (CAT), an independent judicial body. The appeal will focus on examining the CMA’s decision-making process rather than reevaluating the merits of the merger.
At this stage, Microsoft cannot introduce new remedies, such as excluding Activision content from its Xbox Game Pass subscription service in Britain, as suggested by some analysts.
“The CAT will not assess the merits of the CMA’s decision or conduct a comprehensive review of the parties’ evidence,” explained Edward Lane, a senior associate at the law firm Harbottle & Lewis, specializing in creative industries.
What comes next?
Microsoft has until May 24 to file its appeal, and a decision may take several months.
“The CAT aims to process ‘straightforward’ cases in under nine months, but the Microsoft/Activision case is far from straightforward,” said Lane.
If Microsoft wins the appeal, what happens then?
The Tribunal will send the case back to the regulator for further review, giving Microsoft the opportunity to propose new concessions.
“Unless there are significant changes in circumstances or new evidence, it is likely that the CMA will reach the same conclusion as before,” stated James Groves, a competition associate at the European law firm Fieldfisher.
How do other regulators factor into all of this?
European regulators are scheduled to make a ruling on the gaming industry’s largest deal by May 22. The US Federal Trade Commission also filed a complaint to block the deal, and Microsoft has expressed its intention to fight the complaint.
If either of these regulators block the deal, it could be the end of the road, according to Lane.
If the EU ruling goes against Microsoft, the company would face an increasingly difficult battle and may decide to cut its losses. This could involve paying a substantial $3 billion break fee to Activision.
Have there been any successful appeals against the CMA?
In 2021, Meta (formerly Facebook) appealed a CMA decision to block its acquisition of Giphy. The appeal was partially successful on procedural grounds, but the CMA upheld its decision. Meta was then required to sell Giphy.
In another case, financial services company FNZ appealed a block on its 2019 merger with rival GBST. The CAT sent the case back for reconsideration, identifying potential errors in the investigation. The CMA agreed to a new remedy, allowing FNZ to sell GBST and repurchase certain parts of it.
© Thomson Reuters 2023
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