Report: Microsoft and Activision likely to extend merger deadline

As UK regulators extend their final decision date, Microsoft and Activision are also expected to negotiate a new merger termination date that goes beyond the current July 18 deadline.

2

Microsoft and Activision are reportedly leaning towards a merger deadline extension, sources tell the Financial Times. The news report was published before yesterday's big loss for the FTC, where the appeals courts denied the Commission's request to prohibit the merger from consummating until after a months-long appeals process was complete. The merger is now clear to close in the United States, but the FTC plans to start its internal administrative case next month.

That just leaves one more potential roadblock for the $68.7 billion merger: the UK regulators at the CMA. It's assumed that Microsoft and Activision will extend their merger deadline as the parties continue negotiating with the UK agency.

In April, the Competition and Markets Authority (CMA), which is the UK's version of the FTC, issued a proposed order that the merger should be blocked. Shortly after, Microsoft appealed the decision in the Competition Appeal Tribunal (CAT) courts. The CMA's order isn't final, and the agency intended to publish a final report before the merger termination date of July 18.

Following the FTC's loss, Microsoft has struck an agreement with UK regulators to pause the ongoing appeals process.

Days ago, the CMA announced that it was extending the deadline for its final report from July 18 to August 29. This would give the agency more time to consider Microsoft's "detailed and complex submission" that effectively restructured the deal. This means that the CMA's final order could be issued after the merger's termination date.

Thus, it is likely that Microsoft and Activision will extend their merger deadline to ensure that the CMA's final report is published before a termination date, not after.

Microsoft wants to win over the UK agency and secure clearance to ensure that the merger is not disrupted after closing.

It is said that Microsoft has offered the CMA a "small and discreet divestiture" in an effort to address the regulators' concerns of anti-competitive effects arising in the cloud and subscription markets.

Bloomberg reports that this divestiture could see Microsoft exiting the cloud gaming business in the UK, and handing off its xCloud service business to an internet service provider such as EE.

Microsoft and Activision could technically "close over" and merger despite the CMA's ongoing case, but this could lead to forced divestiture or other disruptions down the road. Microsoft wants to get ahead of any surprises and iron out a deal now and not have to worry about issues later on.

The Competition Appeal Tribunal (CAT) has now set a case management conference for July 17, a day before the merger's termination date.

"A CMC has been listed for 17 July 2023 to consider the application made jointly by all parties to adjourn these proceedings pending further discussions between the CMA and Microsoft," reads an update on the CAT's website.

The CAT process may take some time, further adding to the need for an extension of the merger's termination date.

There's speculation that Activision could use any extension negotiations as a way to secure a higher share price premium from Microsoft, possibly raising the buyout share price from $95 to something along the lines of $107 per share. This would raise the merger's total cost from $68.7 billion to $77.4 billion.