Microsoft’s $69 billion acquisition of Activision Blizzard has been given another opportunity to gain approval from UK regulators. The tech giant submitted a substantially different deal to the country’s antitrust watchdog, leading to a new probe being opened by the Competition and Markets Authority (CMA). One of the key changes in the deal is that Microsoft will give Ubisoft Entertainment the rights to distribute Activision games globally. This move could potentially alleviate concerns about dominance in the cloud gaming market, which the CMA had previously expressed.
The news of this development has had a positive impact on Ubisoft’s stock, with shares jumping as much as 9.2% in Paris on Tuesday, marking the biggest intraday move since February. On the other hand, Microsoft and Activision saw little change in their premarket trading in the US, with a slight increase in Activision’s share price. Although Activision is currently trading around $91 a share compared to the offer price of $95, the acquisition still holds significant value.
The decision to reconsider the merger at this stage is highly unusual, but it comes after a series of unexpected turns in the deal’s global regulatory battles. The UK’s agreement to review new evidence sparked renewed momentum for the deal, which was previously thought to be stagnant. Additionally, Microsoft successfully overcame a court challenge by the Federal Trade Commission in the US, and the European Union cleared the deal with behavioral remedies.
The CEO of the CMA, Sarah Cardell, expressed the regulator’s previous concerns about Microsoft potentially controlling the development of the cloud gaming market. However, with the new deal, the control over how cloud streaming rights are used will shift to an independent company. This shift in control is a critical factor that the CMA will carefully review during the probe.
Microsoft faced challenges in meeting the original deadline for the acquisition due to regulatory obstacles. However, Activision agreed to extend the timeline until October 18 to allow Microsoft more time to address the remaining hurdles.
In July, Microsoft requested that the UK regulator reconsider its veto in April, citing significant changes in the situation. These changes include the US court decision and a subsequent deal with Sony to license the highly popular game, Call of Duty. Under the restructured transaction, Microsoft will no longer have the exclusive rights to release Activision Blizzard games on its own cloud streaming service, Xbox Cloud Gaming. Similarly, Microsoft will not exclusively control the licensing terms of Activision Blizzard games for rival services.
Ubisoft, in its own statement, confirmed that it would have the rights to distribute Activision games globally through its subscription platform, Ubisoft+. It will also have the ability to license the titles back to Microsoft and other cloud gaming companies and console makers. This agreement will be valid for the next 15 years after the Microsoft-Activision deal closes, and the rights will exist indefinitely.
The CMA has indicated a preference for structural remedies to address concerns about mergers that hinder competition. In line with this preference, Microsoft and Activision have been working towards a divestiture that satisfies regulators without negatively impacting the acquisition’s key elements. Microsoft has explicitly stated that it will not sell the popular Call of Duty franchise.
As part of the deal, Ubisoft will compensate Microsoft for the rights with a one-off payment. Additionally, a market-based wholesale pricing mechanism will be put in place to support pricing based on usage. The deal has been structured in a way that allows Microsoft to honor its preexisting streaming agreements in the European Economic Area, in compliance with the European Commission’s demands.
The CMA has now initiated the phase one probe, with a statutory deadline of October 18. This review period will allow the regulator to thoroughly examine the new deal and make a final determination on its approval.
Overall, the reconsideration of the Microsoft-Activision merger by UK regulators and the inclusion of Ubisoft in the deal for global distribution rights demonstrates the complex and dynamic nature of mergers and acquisitions in the tech and gaming industries. As the probe progresses, the anticipated outcome will have significant implications for the future landscape of the cloud gaming market.
