Mission Complete: How Microsoft Rescued Its Activision Merger From The CMA's Veto

• Published date: 16 January 2024
• Subject Matter: Corporate/Commercial Law, Antitrust/Competition Law, Media, Telecoms, IT, Entertainment, M&A/Private Equity, Antitrust, EU Competition , Gaming
• Law Firm: Macfarlanes
• Author: Andrew Morrison and Roque Botas Armero

Microsoft's acquisition of Activision was one of the focal points of global competition law during 2023. The varying views and approaches of the CMA, the European Commission (the Commission), the FTC and the US Courts thrust the transaction, and with it, the role of merger control, firmly into a matter of public debate.

Perhaps we shouldn't be surprised that a merger between two video game giants was resurrected out of the doldrums of a CMA prohibition - after all, in the world of video games, you can always play another round. Here we discuss how the CMA reached its decision to clear the Microsoft/Activision transaction at the second attempt, and how this transaction highlights a peculiarity with the CMA procedure which may be mitigated in light of the CMA's proposals to amend its Phase 2 procedure (which we discuss in more detail in our article).

Background

The key steps in the CMA's review process were as follows.

• 18 January 2022, Microsoft enters into an agreement to acquire Activision.
• 6 July 2022, CMA launches Phase 1 investigation.
• 15 September 2022, CMA refers deal to Phase 2.
• 26 April 2023, CMA publishes final report on the Phase 2 investigation (the Final Report).
• 19 May 2023, CMA publishes notice of intention to make final order (the Notice of Intention).
• 25 July 2023, Microsoft makes material change of circumstances submission in the response to the Notice of Intention (the MCC Submission).
• 22 August 2023, CMA issues final order prohibiting the original merger (the Final Order).
• 22 August 2023, Microsoft submits a revised deal to the CMA excluding Activision's non-EEA cloud streaming rights (the Second Transaction) and CMA launches Phase 1 investigation.
• 21 September 2023, Microsoft and Activision offer undertakings in lieu of a Phase 2 reference (UILs).
• 22 September 2023, CMA publishes Phase 1 decision on the revised merger.
• 13 October 2023, CMA publishes decision accepting UILs and gives its green light to the merger.

Initial substantive assessment

The main concern, identified by both the CMA and European Commission, was the potential harm to the nascent and growing market for cloud gaming, which allows users to stream games over the internet without downloading or installing them on a device. Both agencies were concerned that Microsoft could use Activision's popular games to harm other cloud gaming services by denying or limiting access to them. To address this issue, the Commission accepted a remedy from Microsoft to license Activision's games to all rival cloud gaming services in the EEA for 10 years. The CMA, however, rejected Microsoft's proposed remedy and blocked the deal.

In its Final Report, the CMA found that the proposed remedy failed to address its concerns in three fundamental ways:

• the proposed remedy was too narrow in scope. Whilst the license applied to making Activision games available for outright purchase on cloud...