Microsoft and Activision Blizzard have agreed to extend their merger agreement pending the outcome of negotiations with UK regulators. Both parties will now have until October 18th to finalize the transaction, after missing yesterday’s original deal deadline.
“The recent decision in the US and approvals in 40 countries all validate that the deal is good for competition, players, and the future of gaming,” tweeted Lulu Cheng Meservey, Activision Blizzard’s CCO and EVP of corporate affairs. “Given global regulatory approvals and the companies’ confidence that CMA now recognizes there are remedies available to meet their concerns in the UK, the Activision Blizzard and Microsoft boards of directors have authorized the companies not to terminate the deal until after October 18.”
Microsoft vice chair and president Brad Smith says the three-month extension is designed “to provide ample time to work through the final regulatory issues.”
Both Microsoft and Activision Blizzard have also agreed to a higher termination fee and new commercial arrangements for the transaction. A termination fee, payable if Microsoft or Activision walks away from the deal, is now set at $3.5 billion if the deal doesn’t close by August 29th, and it jumps to $4.5 billion if September 15th passes without a finalization.
Activision has also agreed to potentially “hold separate the Company or certain assets of the Company or to implement other lawful alternatives to consummate the Merger” with UK regulators. This is a key part, as it may allow the merger to go ahead with restrictions from the UK’s Competition and Markets Authority (CMA).
This three-month delay is related to Microsoft’s ongoing negotiations with the CMA. The UK regulator originally blocked the deal over cloud gaming concerns earlier this year. While Microsoft has appealed that decision, the company is also preparing to reportedly offer a new proposal to sell off its rights to cloud gaming in the UK to try and get the deal over the line.
The merger extension comes after a case management conference in the UK on Monday, where the Competition Appeal Tribunal (CAT) agreed to allow Microsoft and CMA to negotiate a way to close the deal and pause the appeal process. The CMA made it clear earlier this week that Microsoft had not yet submitted its final proposal, and the regulator now has until Thursday at midday to file all the relevant evidence to the CAT for the tribunal judges to officially put the pause of the appeal in place.
Microsoft had originally planned to close its Activision Blizzard deal by July 18th, but the complex situation in the UK has added some extra time to the process. While there is plenty of regulatory work to do in the UK to analyze a change to the transaction, Microsoft is extending its deal deadline date to avoid it falling through if Activision Blizzard decided to walk away or the unlikely scenario of another company attempting to offer better terms for an acquisition.
Reading between the lines it looks like Microsoft and Activision Blizzard are aiming for a lot sooner than October 18th. The CMA also said last week that it will now issue a final order by August 29th, and Microsoft and Activision Blizzard have agreed an termination fee increase to $3.5 billion for that same date. That suggests there’s a realistic prospect of Microsoft’s proposal to the CMA being complete by August 29th, but the company has a lot longer should the regulator need to more fully investigate its changes to the terms of the deal.
Finally, in an internal memo to Xbox employees, Microsoft Gaming CEO Phil Spencer says he’s “optimistic” about the acquisition still being finalized:
Team,
Microsoft and Activision Blizzard remain optimistic that we will get our acquisition over the finish line, so we have jointly agreed to extend the merger agreement to October 18, 2023. While we can technically close in the United States due to recent legal developments, this extension gives us additional time to resolve the remaining regulatory concerns in the UK.
I want to thank everyone for your time and energy in support of the regulatory process and on all the great work coming to fruition for Xbox this year. Players around the world will be delighted with the incredible lineup of games launching in the next few months, including Starfield and Forza Motorsport. It is also great to see the fantastic work the ABK teams are delivering for their players with the successful launch of Diablo IV and the ongoing performance of Call of Duty: Modern Warfare II, and we congratulate them on their accomplishments.
As we move even closer to the finish line, we are more excited than ever before about furthering our mission to bring more games to more players everywhere.
Phil
