Report: Microsoft and CMA Reach Agreement on Small Divestiture - News
by William D'Angelo , posted on 02 August 2023 / 6,756 Views
Microsoft won its case earlier today against the FTC in the US as Judge Jacqueline Scott Corley denied the preliminary injunction. The FTC has until Friday to appeal the decision.
The Competition and Markets Authority (CMA) of the UK did block the deal in April, however, Microsoft and Activision Blizzard ended up appealing the decision and hearings were set to start on July 24. That has since been paused as the CMA and Microsoft have decided to see if a new deal could be worked out.
CNBC journalist David Faber is now reporting Microsoft and the CMA have reached an agreement.
"Microsoft and the CMA have agreed on a small divestiture to address the regulator’s concerns," reads the report from CNBC.
If Microsoft and the CMA have reached an agreement, and if the FTC don't appeal the decision in the US, Microsoft could close the Activision Blizzard acquisition as early as this weekend.
"After today’s court decision in the U.S., our focus now turns back to the UK," Microsoft Vice Chair and President Brad Smith previously stated. "While we ultimately disagree with the CMA’s concerns, we are considering how the transaction might be modified in order to address those concerns in a way that is acceptable to the CMA.
"In order to prioritize work on these proposals, Microsoft and Activision have agreed with the CMA that a stay of the litigation in the UK would be in the public interest and the parties have made a joint submission to the Competition Appeal Tribunal to this effect."
The UK CMA in a previous statement said, "We stand ready to consider any proposals from Microsoft to restructure the transaction in a way that would address the concerns set out in our Final Report.
"In order to be able to prioritise work on these proposals, Microsoft and Activision have agreed with the CMA that a stay of litigation in the UK would be in the public interest and all parties have made a joint submission to the Competition Appeal Tribunal to this effect."
A life-long and avid gamer, William D'Angelo was first introduced to VGChartz in 2007. After years of supporting the site, he was brought on in 2010 as a junior analyst, working his way up to lead analyst in 2012 and taking over the hardware estimates in 2017. He has expanded his involvement in the gaming community by producing content on his own YouTube channel and Twitch channel. You can contact the author on Twitter @TrunksWD.
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Idas, a UK M&A lawyer over on Resetera, believes that this deal had been in the works for weeks and that the CMA was just waiting on the FTC decision.
What I think this divestiture is:
Minimally: Call of Duty will not be available on UK xcloud
Maximally: Microsoft will no longer offer xcloud services in the UK
Or something weird in between
But that still wouldn't explain WHAT is being divested. ABK itself? Some sub-component of ABK? Something un-related to ABK? What is Microsoft selling off to make this happen? And who is the owner? Microsoft wholly-owning an ABK UK subsidiary? Or some other arrangement?
If it’s the xcloud exiting the UK market, then the thing that would be divested is the physical cloud infrastructure that Microsoft owns in the UK
Yep, good suggestion. But interestingly that doesn't necessarily mean it won't be divested into a separately run but wholly-owned new Microsoft subsidiary. The details on this will be interesting for sure!
Microsoft may divest it into a wholly-owned subsidiary potentially with the intent to sell it off, since finding an appropriate buyer may take time. And it being independently-run may be all that's required to satisfy the CMA's concerns.
After all, the fact that ABK will be wholly-owned by independently run was a factor in the court's decision to deny the preliminary injunction sought by the FTC.
There's absolutely no chance that either of those things will happen. Those would both be negatives for UK consumers, and that would not help the CMA save face. Whatever the divestiture is, it's happening so the CMA can appear as though they got something out of Microsoft. But screwing over UK gamers is the opposite of what they want, as that what just further shift public opinion against them.
The FTC looks ridiculous. As an avid consumer of business news, I've noticed that this hearing got a little bit of run, but the decision today got a ton of coverage. All of it focusing on how the FTC keeps getting their ass handed to them on antitrust stuff. The CMA sees this. They want to save face. They know that they cannot stop the deal from closing. So, my guess is that they're going to get some token divestiture from Microsoft, so they can say "hey, look we did something good!" If they tried to push for something big, Microsoft would just say no, as they already know they have the upper hand. Then the CMA would risk further embarrassment.
CNBC is also reporting that xCloud is being removed in the UK and that Microsoft & CMA have already agreed to it, that is the "small divestiture" according to CNBC.
Which is ridiculous and makes CMA look ridiculous as all their "protecting UK consumers" ultimately ends with them harming UK consumers but nothing will surprise me at this point.
Wouldn’t it make more sense to remove Activision games from xCloud, rather than remove xCloud completely? The CMA never said xCloud is monopolistic on its own, they only believed it’s a monopoly if it has Activision games on it. Plus removing xCloud completely would be bad for UK consumers.
Sounds like the deal is going to close very soon.
Moving faster than expected, MS were clearly in talks with the CMA while all this FTC stuff was going on.
Prediction: This will be a meaningless divestiture done only so the CMA can save face. It won't be anything substantive.
The fact MSFT is willing to compromise at all shows the CMA has some merit ins objections. Otherwise MSFT would say nope and carry on.
I reckon the “divestiture” won’t be a game as such but of services. So the removal of EA play, UBI and some sort of restriction on MSFT so that it doesn’t do what it said it wants to do and “spend Sony out of businesss”. TBH any divestiture would be less than the $3billion breakup fee.
CMA's main reason for blocking the acquisition of Activision Blizzard was over the cloud gaming market, so, most likely, the divestiture will involve that.
Time is money.
The longer Microsoft is delayed, the less revenue Microsoft can accrue from Activision Blizzard. - For example Microsoft missed out on the money from Diablo 4's massive launch... And there are other games coming.
Thus they may be better off financially spinning off some of the smaller fluff anyway in order to expedite the purchase.
So whilst yes it may look like a compromise, it all comes down to business and money in the end.
This deal is not about money and losing the revenue from Diablo 4 might seem massive to the average person who doesn't know what MSFT's turnover is but really it's insignificant. It's pretty much a rounding error.
You need to put the "rounding error" in context.
Diablo 4 made $666 million in 5 days. It is now over the $1 billion dollar mark.
It took the Xbox division three months to bring in 3.5~ Billion in revenue.
Microsoft as a whole business was 53~ billion.
Diablo 4 -alone- as a "rounding error" is probably equivalent to 2% of Microsoft (A 2~ trillion dollar company) revenue for an entire quarter.
That is a pretty impressive "rounding error" and it puts it into context the kind of power Activision Blizzard is going to bring to the competitive gaming table.
