EU green lights Microsoft-Activision Blizzard merger. What’s next?
- The EU has approved the US$69 billion acquisition offer by Microsoft for the Call of Duty creator Activision Blizzard.
- The European Commission’s approval revives Microsoft’s hopes for the deal as it prepares to appeal against the UK CMA’s decision and the US FTC’s.
- For now, the UK’s objection could still force the abandonment of the transaction.
Just a few weeks ago, we discussed how the era of accessible blockbuster tech deals might be over, given the numerous regulatory hurdles that Microsoft and Activision have been facing. After all, the deal–largest-ever for the software maker and within the video game industry–faced a possibly fatal blow from the British antitrust regulators last month.
Fast forward to this week, Microsoft has been granted some breather with approval from the European Union (EU) regulators for its US$69 billion (£55 billion) attempt to purchase Call of Duty publisher Activision Blizzard. According to the European Commission (EC), Microsoft had addressed their concerns on competition issues three weeks after the UK blocked the deal over worries it would hurt competition in the emerging cloud gaming business.
But more than a green light from the EU is needed for the Microsoft-Activision deal, which is also poised to be the largest consumer tech acquisition. For the deal to go through, Microsoft and Activision require approval from regulatory bodies in the UK, EU, and the US. Unfortunately, as of now, only the EU has been relieved of their concerns.
In hindsight, the approval by the EC, the bloc’s executive arm, will perhaps revive Microsoft’s hopes for the deal as it prepares to appeal against the UK’s Competition and Markets Authority (CMA).On the other hand, in the US, the Federal Trade Commission (FTC), which is also against the takeover, is suing to block it.
How did Microsoft Activision reach this point?
It all started in January 2022 when Microsoft and Activision announced the largest-ever deal for the software maker and within the video game industry. The deal would give the Xbox maker control of one of the biggest video game companies in the world, including popular gaming franchises like Call of Duty, Overwatch, and World of Warcraft.
In short, Microsoft will become the world’s third-largest gaming company by revenue, behind Tencent and Sony, when and if the deal closes. Since then, Microsoft has set a goal to have the deal finalized and completed by this year.
What was the EC’s issue with the Microsoft-Activision merger deal?
For starters, both companies develop and publish games for PCs, consoles, and mobile devices and distribute games for PCs. Microsoft also distributes games for consoles and offers the Xbox console and a wide range of products and services, including the PC operating system “Windows.”
Activision’s games portfolio includes famous franchises such as Call of Duty, World of Warcraft, Overwatch, and Diablo. That said, the Commission’s preliminary investigation found that Microsoft could harm competition (i) in the distribution of console and PC video games, including multi-game subscription services and cloud game streaming services; and (ii) in the supply of PC operating systems.
By Monday this week, the Commission announced that it had accepted Microsoft’s proposed remedies. The compromise involves Microsoft offering free licenses over ten years, allowing European consumers who purchase Activision PC and console games to stream them on other cloud gaming services.
The EU’s competition commissioner, Margrethe Vestager, said the decision would bring Activision’s games to “many more devices and consumers than before thanks to cloud game streaming.” She added, “The commitments offered by Microsoft will enable for the first time the streaming of such games in any cloud game streaming services, enhancing competition and opportunities for growth.”
What do the US and UK say about the EU’s decision?
In an official statement on social media, the CMA said that it recognized and respected the EC’s verdict but still stood by its original decision. “Microsoft’s proposals, accepted by the European Commission today, would allow Microsoft to set the terms and conditions for this market for the next ten years,” said CMA’s chief executive Sarah Cardell.
She went on to say that both companies would replace a free, open, and competitive market with one subject to ongoing regulation of the games Microsoft sells, the platforms to which it sells them, and the conditions of sale. “This is one of the reasons the CMA’s independent panel group rejected Microsoft’s proposals and prevented this deal,” Sarah added.
Experts reckon it makes a difference if Microsoft overturns the UK competition appeal tribunal decision. However, if it loses in the UK, it’s still game over. “That is unless Microsoft decides to withdraw from the UK market,” Anne Witt, a professor of antitrust law at the EDHEC business school in France, told The Guardian.
As for the US, the case between the FTC and Microsoft is still ongoing. A senior commission official said the EU had exchanged views with the FTC on several occasions and had close cooperation.
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