CMA Bars Microsoft from Purchasing or Increasing its Stake in Activision-Blizzard

The United Kingdom’s Competitions and Market Authority (CMA) decision to ban the $69 billion merger between Microsoft and Activision-Blizzard was an unexpected turn of events for both market participants and the two companies. Now, the CMA is further expanding its prohibitions to prevent the Redmond-based tech company from upping its stake or acquiring one by using a subsidiary.

In an interim order issued by the CMA earlier this month, the regulatory agency extended its provisions concerning the deal to prevent Microsoft from acquiring an interest in the company behind the popular games World of Warcraft and Diablo unless it has received permission from the agency.

They are also barred from holding an option to acquire a stake in the business or take a position in a holding company that directly possesses a stake in Activision-Blizzard. The same applies to the company headed by Bobby Kotick, whose UK-based subsidiary cannot hold any stake in Microsoft (MSFT) without asking for the CMA’s consent first.

Both Parties Were Surprised by the CMA’s Decision to Ban the Merger

The order comes just a few days after the regulator effectively blocked the merger by stating that it had enough evidence to think that it would result in a “substantial lessening of competition” (SLC) affecting the supply of cloud gaming services within the United Kingdom.

The final report on the merger, which was issued in late April, indicated that the remedies proposed by Microsoft to appease the regulator’s concerns in regards to the significant dominance that it would gain in this particular market if the acquisition is consummated “failed to effectively address the concerns” that the agency outlined earlier.

This proposed solution included a ten-year provision that forced Microsoft to offer all of Activision-Blizzard’s games to other console manufacturers and cloud gaming platforms. In this scenario, the CMA would have to oversee that the company is complying with the rule, which prompts the regulator to substitute market forces and self-regulation, which are typically the preferred mean to maintain a market’s fairness.

“Accepting Microsoft’s remedy would inevitably require some degree of regulatory oversight by the CMA. By contrast, preventing the merger would effectively allow market forces to continue to operate and shape the development of cloud gaming without this regulatory intervention”, the regulator weighed in this final document.

Overall, the agency deemed the benefit coming from making Activision-Blizzard’s games available on GamePass – Microsoft’s subscription for its cloud gaming platform – did not exceed the risks that the completion of the merger supposed and the harm it caused to the market’s structure.

“Microsoft engaged constructively with us to try to address these issues and we are grateful for that, but their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market”, commented Martin Coleman, the chair of the panel that reviewed and made a decision on the case on behalf of the CMA.

Activision responded to the CMA’s decision in the press release through which it shared its quarterly results covering the first three months of 2023.

“Activision Blizzard considers that the CMA’s decision is disproportionate, irrational and inconsistent with the evidence. Microsoft has announced its decision to appeal the CMA’s ruling, and Activision Blizzard intends to fully support Microsoft’s efforts on this appeal. Activision Blizzard continues to believe that the deal is pro-competitive, will bring Activision Blizzard content to more gamers, and will result in substantial benefits to consumers and developers in the UK and globally”, the statement reads.

EU Regulators Will Decide on the Microsoft-Activision Merger Later this Month

The deal is still being reviewed by authorities in the European Union, where a decision is expected to be issued by 22 May while the Federal Trade Commission (FTC) in the United States opposed the deal since the get-go.

A poorly-timed meeting between the heads of the FTC and the CMA occurred just days before the agency ruled on the case and Activision’s CEO Kotick pointed out that he was “surprised” to learn that the two officials met.

“I think that that’s what you’re seeing now is that the CMA is being used as a tool by the FTC to be able to create these kinds of outcomes, and it this isn’t the way that they’re supposed to be operating”, the tech leader argued.

The FTC refuted Kotick’s claims and comments by stating that there was no intent of colluding and that this was a long-dated practice of cooperation between the two agencies. “When a deal appears blatantly anticompetitive then independent antitrust regulators can simply make their own judgments”, a spokesperson for the FTC highlighted referring to the merger.

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