Will Microsoft’s call of duty to restructure Activision deal pay off?

Microsoft’s proposed USD 68.7bn acquisition of video games developer Activision Blizzard potentially enters the final level.


The CMA started its Phase 1 review of the restructured deal[1] on 22 August and the ‘state of play’ stage of the investigation is expected to take place at some point in the week beginning 18 September.[2] In this closed call attended only by the CMA, the parties and their advisors, the CMA is expected to give an indication as to whether the new proposed transaction is likely to raise any substantive competition concerns, giving the parties an opportunity to consider whether any further remedies are required. We consider it unlikely that the CMA will raise further competition issues assuming that (i) the parties have addressed all the issues in the Final Report in the pre-notification stage and (ii) there are no further oppositions to the deal from third parties since Sony has been placated with a long-term supply agreement. This would bring a satisfying end to one of the most talked about deals this year.  

The road from the deal announcement in May 2022 to now has been a real test of the flexibility of the UK merger regime, and its repercussions on the UK competition law practice may survive long after the Call of Duty series bites the dust. Some of the criticisms of the CMA have been unjustified. The CMA’s decision-making process features an independent inquiry group (the ‘Inquiry Group’) that is entirely separate from political pressure or Phase 1 decision and policy making. The CMA’s decision to take a strong approach is partly informed by its past experience where it probably feels that mistakes were made, and tech deals in nascent industries (Facebook/Instagram, Facebook/WhatsApp) waved through without real consideration of how competition might develop in those markets.

Final Order issued 

On 22 August, the CMA announced that it has issued a Final Order to prohibit Microsoft’s proposed acquisition of Activision (the ‘Transaction’). The Inquiry Group concluded that having taken account of Microsoft’s and the CMA’s submissions (and other third party submissions), there was insufficient evidence that there has been a material change of circumstances (‘MCC’) or a special reason (‘SR’) under section 41(3) of the Enterprise Act that would result in a change to the remedy decision or cancellation of the Final Order. Given that the US courts denied the Federal Trade Commission’s application to block the deal in the US, the CMA was also required to give evidence in a sworn statement that the US process did not affect its decision to support the adjournment.  

The Inquiry Group specified that none of the 4 grounds Microsoft cited individually or cumulatively constitute an MCC or SR. The Inquiry Group noted that most of the reasons cited were known to the CMA at the time of the Final Report and found that additional developments since the Final Report only impacted on part of the nascent cloud gaming market. In particular, Microsoft cited the following factors:

(1) the acceptance by the European Commission (the ‘Commission’) of Commitments (the ‘Commission Commitments’) from Microsoft, which Microsoft submits provide a statutory underpinning and enforcement structure to the cloud gaming licensing agreements Microsoft entered into with NVIDIA, Boosteroid and Ubitus (the ‘Cloud Agreements’);  

(2) an agreement entered into between Sony and Microsoft providing access to call of duty (cod) (the ‘Sony Agreement’);  

(3) new evidence that has become available through litigation in the US relating to the transaction; and  

(4) new information obtained by Microsoft through UK court proceedings relating to its appeal of the Report.   

It seems likely that Microsoft chose not to withdraw its application (which could have led to the reference being cancelled and no Final Order being made) in order to preserve its stayed application in the CAT to appeal the final decision. Microsoft may well consider that this tactic will help to maintain pressure on the CMA to conduct the new review in a timely manner.

New restructured deal

At the same time, on 22 August, the CMA announced that Microsoft has made a new notification of a restructured deal. The proposed new deal involves (i) divesting Activision’s global cloud streaming rights (excluding the EEA) for all current and future Activision PC and console games released during the next 15 years to Ubisoft Entertainment SA (‘Ubisoft’); and (ii) licensing Activision’s EEA cloud gaming rights to Ubisoft to enable it to stream and sub-license streaming of Activision games in the EEA. Microsoft will also get a non-exclusive licence from Ubisoft for cloud streaming rights to the extent necessary for Microsoft to fulfil its obligations under its commitments to the European Commission and its existing third-party cloud streaming agreements with Sony, Nintendo, Boosteroid and GeForce Now (and possibly others).[3]

The CMA states that the new transaction ‘is substantially different from what was put on the table previously’ and triggers a new Phase 1 review. The Phase 1 deadline is 18 October, coinciding neatly with the extended long stop date of the Microsoft/Activision merger agreement.   

The restructured deal is formulated to remove Microsoft’s ability to deploy any competitor foreclosure strategies by giving the decision-making rights to Ubisoft (who is unlikely to have the ability or incentive to foreclose other cloud gaming platforms including, Xbox, Playstation and Connect) and thus allay the CMA’s concerns in the cloud gaming market. The exact details of the new deal are unavailable, though we understand that the parties intend the divestment to take place immediately before the completion of the Microsoft/Activision acquisition.

As a result, the new deal is akin to a ‘fix it first’ (or ‘upfront buyer’) approach – or rather, in this case, a ‘fix it last’ remedy that has always been open to the merging parties but very rarely (if ever) have merging parties waited until the Final Order has been made to exercise this. Sarah Cardell (CEO of the CMA) commented that Microsoft’s decision to notify a restructured deal is ‘pretty unprecedented’ and ‘unadvisable’ in terms of resource efficiency and that ‘parties should be engaging fully and early in Phase II’ on remedies.[4]

Given the restructured deal itself is subject to a CMA merger review, competition assessment of Activision’s divestment of global cloud gaming rights to Ubisoft still requires the CMA’s approval. It is expected that the parties would have engaged heavily with the CMA on the scope and structure of the new deal to ensure that it fully addresses the competition harms identified in the CMA’s Final Report. In addition, Ubisoft still needs to meet the divesture purchaser criteria[5] that the divesture to Ubisoft itself must not raise any potential competition issues. Both Microsoft and the CMA have a strong incentive to clear the restructured deal as it allows Microsoft to go ahead with the Activision deal and for the CMA to present the divesture to Ubisoft as a win given it is the only regulator to have extracted a structural remedy from Microsoft on this deal.

What’s next?

Whilst the future of the deal is not 100% clear since the CMA still needs to approve the restructuring deal, it is certainly looking bright for Microsoft to complete before the 18 October SPA extension deadline and thus avoid a hefty break fee. Further, by not cancelling the reference to the CAT, Microsoft has preserved its right to appeal the Final Report. In addition, it is also open to Microsoft to launch a fresh challenge in the CAT against the Inquiry Group’s decision that the standard for withdrawing the Final Report on grounds that there has been MCC and SR are unmet. 

In this process, the CMA has at times appeared to be at danger of backtracking. Joining Microsoft in a request for an adjournment in the CAT in July was taken by many to signal the CMA’s weakness. Many were surprised by the CMA’s willingness to review the Final Report unilaterally without a CAT judgment requiring it to do so. However, the decision in August by the Inquiry Group to deny an MCC or SR and to issue a Final Order at the same time as the CMA was reviewing a restructuring deal allows the CMA to achieve a fair balance between allowing merging parties to make the most of the flexibility of the UK merger regime, and to extract a divesture remedy from the merging parties (which goes beyond that offered to any other competition authority in the world). The Financial Times reported on Tuesday on the CMA’s newfound influence, but cited a view from some commentators that the CMA is ‘more unpredictable’. However, there can be no doubt in this case that the CMA’s independence was upheld in the face of considerable political and global pressure. Ultimately, if the new deal is approved, the CMA would have chartered a tricky course that delivered, in effect, a structural remedy whilst allowing the deal to proceed. Such an outcome may well stand the test of time as a good outcome – noting that US regulators failed altogether in their attempts to stop the deal, whilst the European Commission settled for behavioural remedies. Nevertheless, merger parties in future deals should take heed that behavioural remedies before the CMA appear to be well and truly off the table.


[1] Ubisoft Signs Deal for Streaming Call of Duty and Other Activision Blizzard Games

[2] The ‘state of play’ call usually takes place between working day 15 and 20 of the Phase 1 40 working day review period.

[3] Microsoft / Activision Blizzard (ex-cloud streaming rights) merger inquiry

[4] https://app.parr-global.com/intelligence/view/intelcms-nbqw2z

[5] The criteria for a divesture buyer is set out in the CMA’s Merger Remedies Guidance(a) The acquisition by the proposed purchaser must remedy the competition concerns; (b) purchaser must be independent, have the capability including financial resources and has the incentive to operate the business as a viable business to maintain competition in the market and (c) the divesture itself must not raise competition issues.

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