Why has the EU approved landmark $69 Billion Microsoft-Activision deal after the CMA’s rejection?

Following the UK Competition and Markets Authority’s (CMA) decision to object to Microsoft’s landmark Activision deal over concerns that it would result in reduced innovation and fewer choices for UK gamers, the EU has approved the merger. In light of the announcement, Claire Trachet, M&A expert and CEO of business advisory, Trachet, highlights the significance of the decision and what this will mean for the future attractiveness of the UK M&A market.

Despite the CMA announcing their decision a few weeks ago, Margrethe Vestager – executive VP in charge of competition policy at the European Commission – stated that the EU’s decision represents “an important step in this direction, by bringing Activision’s popular games to many more devices and consumers than before thanks to cloud game streaming”. Additionally, the EU has also announced that Microsoft has proposed remedies that focus on permitting users to stream Activision games they buy on any cloud streaming platform.

Microsoft also proposed the idea of addressing the CMA’s competition concerns by vowing to provide competitors – Sony and Nintendo – with access to their cash-cow first-person shooter franchise, Call of Duty. However, The CMA stated that Microsoft’s proposal contained various shortcomings. This included not sufficiently covering a great variety of gaming service models or being open to other providers who potentially want to offer versions of these games on other consoles or operating systems outside of Microsoft’s product suite.

Microsoft has announced it is in the process of appealing against the CMA’s decision. While the CMA’s role as one of three regulators to rule on this decision means that its decision potentially damaged the takeover, this decision from the EU could help improve Microsoft’s chances of getting this deal over the line.

Claire Trachet comments on the £55 billion Microsoft – Activision deal and the implications this will have on the UK as a global M&A destination:

“The EU’s decision to approve Microsoft’s M&A after the CMA’s decision to block the deal is unexpected – the UK and the US are traditionally known to have an open-market mentality when it comes to mergers that can stimulate investment and the economy. This marks a shift in the EU’s approach to their competition regulations for foreign investors and solidifies its place as a top contender in the M&A market.

“While the CMA’s main reason for blocking the deal came from competition concerns, the EU have analysed the proposals that Microsoft have put in place and see the deal as an advantage for consumers and developers who will be given more options as a result of the merger. In this sense, the EU appears to have had a much more innovative, future facing mentality for the deal compared to the UK and the US, something that will resonate with investors in the long run.

“The EU’s decision acts as a big win for Microsoft and will, in turn, serve as a critical moment on the global M&A stage. The deal also has a direct impact on the attractiveness of the UK as an M&A and investment destination as the CMA’s decision to block the deal could deter other big players from attempting similar landmark deals.

“However, the increase pre-covid of inward foreign investment to the UK shows a positive direction for M&A where many predicted a halt. Today, there is a growing number of investors who are sat on a dry powder pile having paused investments due to uncertainty in 2022. This means there are significant opportunities on the horizon, and now is the moment to prepare and get deal ready as more opportunities may arise in H2 of this year.”