UK vs Microsoft-Activision merger: Here's what's going on

UK regulators believe Microsoft's new Activision merger restructured deal will satisfy its concerns, and here's what's going on with the merger in the UK.

3 minutes & 38 seconds read time

The UK regulators at the CMA are the last hurdle for the Microsoft-Activision merger. Things are moving fast, and here a breakdown of what's going on.

UK vs Microsoft-Activision merger: Here's what's going on 7

Following many months of investigation, the Competition and Markets Authority (CMA) issued a final report that suggested the Microsoft-Activision merger should be blocked. The antitrust agency argues that the Microsoft-Activision merger will create SLC (Significant Lessening of Competition) effects in cloud and subscription.

Now the UK regulators are having a change of heart. Microsoft has offered new proposals that have convinced the CMA that Microsoft is capable of addressing their concerns in these relevant markets.

Microsoft's proposals are so convincing that the CMA joined with Microsoft and Activision to file a joint motion to request the scheduled appeals court case be adjourned, or put on hold. Yesterday, the UK appellate courts approved the request.

The CMA argues that Microsoft's offers could address concerns of anti-competitive harm that were made in the agency's final report, a report that stated the deal should be blocked.

"What the CMA has sought to do in its skeleton argument is articulate that based upon the discussions to date, both sides, Microsoft and the CMA, have confidence that Microsoft notifying a restructured transaction, is capable of addressing the concerns the CMA has identified," CMA lawyer David Bailey said in yesterday's appeal hearing.

The CMA has yet to issue a final order regarding the merger. Typically, the final order must reflect the final report, however in this case, Microsoft's offers are enough to potentially change the CMA's thoughts on the final order.

The final order is a legally-enforceable order that will decide the fate of the Microsoft-Activision merger as it relates to the United Kingdom.

Under section 41 of the UK's Enterprise Act, the CMA has special powers to allow the final order to deviate, or be different from, the final report. A provision of Section 41 says the CMA may change its determination between the final report from the final order if there is a material change of circumstance since the preparation of the report, or if the CMA has a special reason to determine differently.

This has happened. Microsoft's proposal counts as a material change in circumstance, and a special reason. The offer is enough to convince the CMA that it should not issue a final order to block the Microsoft-Activision merger based on its final report.

Justice Marcus Smith explains at the recent Competition Appeal Tribunal hearing:

"There's a relationship between the final report in this case, and the final order in section 41. Generally speaking, the final order ought to be reflective of and implementing of the final report.

"However, as all the parties stressed, there is a carve-out. The final order does not have to be consistent with the final report where there has been a material change of circumstances, or the CMA has a special reason to decided differently.

"These carve-outs exist in this case, the CMA has particular said. It is obviously the case that I cannot second guess what the CMA is telling me. The question whether this is the case is for the CMA, and for the CMA to decide these matters, that is the matter for the CMA."

So what did Microsoft offer the CMA?

Reports indicate that Microsoft has offered the CMA a "small and discreet divestiture". Further reports from Bloomberg indicate that this divestiture will be related to the Xbox cloud gaming business. No party involved in the hearing--neither Microsoft nor the CMA--could reveal exactly what was offered due to confidentiality reasons.

Justice Marcus Smith agreed to issue the adjournment request on the basis that Microsoft and the CMA provide specific detailed evidence on the CMA has determined that Section 41-3 is applicable in this case.

So what's next?

Microsoft will prepare a formal notification of a restructured deal to the CMA.

The CMA's Inquiry Group will examine and assess Microsoft's new restructured deal in a formal process.

According to CMA lawyer David Bailey, this process can take up to 20 days. The CMA has prepared for this eventuality by extending the deadline of its final order to August 29.

The CMA does have special powers to fast-track this investigation, which it will likely utilize, however the process must also include inclusion of third-parties and weigh the public interest.

Here's a breakdown from CMA's David Bailey:

"A Phase 1 investigation would start when Microsoft notifies a new transaction.

"The next step in Phase 1 is that the CMA would engage with parties, and habitually consult interested parties, that process can take 15-20 days. At the end of the Phase 1 process, CMA must decide whether its duty is made within 40 days.

"The CMA can move more quickly than the statutory timetable. The CMA can fast-track this process.

"Before it can fast-track in Phase 1, CMA must determine if there's a new relevant merger situation. The CMA can truncate the time it spends on this process. The CMA does have experience of using this fast-track procedure."

If Microsoft's restructured deal is adequate, it's possible the investigation does not move past Phase 1, and that the merger is cleared under a final order.

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Derek joined the TweakTown team in 2015 and has since reviewed and played 1000s of hours of new games. Derek is absorbed with the intersection of technology and gaming, and is always looking forward to new advancements. With over six years in games journalism under his belt, Derek aims to further engage the gaming sector while taking a peek under the tech that powers it. He hopes to one day explore the stars in No Man's Sky with the magic of VR.

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