What happens next with UK CMA’s block of Microsoft’s Activision deal?

With U.S. Judge Jacqueline Scott Corley siding with Microsoft and choosing not to stop the tech giant’s $68.7 billion acquisition of Activision Blizzard from going through, Microsoft’s road to completing the biggest merger in video game history just got a lot clearer.

Federal Trade Commission in the U.S. hasn’t yet conducted its own administrative case to oppose the deal. Its case before Judge Corley simply sought an interim injunction preventing the closing of the deal until the regulator had completed its process. But the FTC’s case will be conducted in an administrative court that has no power to block the deal. The FTC is unlikely to pursue its case if it does not have the support of federal courts. This would effectively allow the purchase in the United States.

European Union already approved the purchase. The European Commission confirmed on May 15, that the agreement Microsoft signed with Activision to allow Activision Blizzard titles to be played by rival consoles, cloud gaming and other services was satisfactory.

However, one of the most powerful antitrust authorities is against the deal. The U.K.’s Competition and Markets Authority said in April that it would prevent the deal from going ahead, citing concerns over its effect on competition in the small but growing cloud gaming market.

Microsoft and Activision Blizzard have announced they will appeal the CMA’s decision, but there’s a problem: Their deal has a deadline, and it’s coming up really soon.

Microsoft is required to complete its purchase of Activision Blizzard before July 18th, according to terms and conditions of the agreement. It will have to pay Activision a staggering $3 billion in termination fees if it fails to meet the deadline.

This date will be before the U.K. appeals process begins. Hearings before the U.K.’s Competition Appeal Tribunal start on July 24.

What will Microsoft do now?

Microsoft can ignore CMAs and still close a deal.

Rumors have persisted that Microsoft might simply ignore the CMA’s order, close the deal anyway, and deal with the consequences. Other “extreme options” that have been floated include withdrawing Activision from the U.K. market or closing its offices in the country in an attempt to bypass the CMA’s ruling.

These options were given credence by a Bloomberg report in June that cited anonymous “people familiar with the discussions” ahead of a meeting between Microsoft president Brad Smith and U.K. government minister Jeremy Hunt. The sources claimed Smith would consider these options seriously with Microsoft’s U.K. legal team.

In a recent Polygon interview, Piers Harding Rolls from Ampere Analysis said that this is highly unlikely.

“Although there are quite a lot of rumors swirling around about closing the deal over the CMA’s decision, Microsoft will be thinking long and hard how that could impact future deals it does, the implications for its reputation, and how [the Competition Appeal Tribunal] would view that move,” Harding-Rolls said.

Harding-Rolls pointed out that, while Microsoft is apparently livid about the CMA’s decision, it believes it is getting a fair shake from the CAT. The tribunal is “moving through the appeals process at a comparatively rapid pace and is being accommodating to get it done as soon as possible,” he noted. The CAT dismissed the CMA’s request to postpone the hearings on appeal until October 29th. “We consider that the CMA has not paid sufficient heed to the true public interest in this case — which is the swift resolution of Microsoft’s Notice,” the tribunal said.

Nor does Microsoft underestimate the CMA’s power. It seems likely that the threatened “extreme options,” including ignoring the CMA, are just a negotiating position. Microsoft, in reality would not go ahead with any of these options.

“The CMA’s order is legally enforceable, and it has the power to apply heavy fines,” Harding-Rolls said. “The upheaval and commercial ramifications of closing Activision’s U.K. offices or changing the structure of the company to try and get around the block I consider to be last-resort type of actions. I just don’t see that as a good outcome for anyone, really.”

What will Microsoft do? What can Microsoft do?

Microsoft’s preference will still be to close the deal before July 18, and Judge Corley’s decision puts it in a strong position. Microsoft’s first move will be to try and preempt any appeals by reaching an agreement behind closed doors with the CMA. “I think Microsoft’s next move would be to try and open up channels of communication with the CMA around the cloud gaming theory of harm, and aim to close before the deadline on July 18,” Harding-Rolls said.

But the CMA’s concern about the acquisition’s potential impact on cloud gaming has been quite strongly worded, and it has been specifically unimpressed by the deals Microsoft has struck with other cloud gaming providers such as Nvidia — the same deals that the EU found satisfactory. In the CMA’s report, there doesn’t seem to be a lot of ground where Microsoft will be able to find agreement. It has already said it will not consider the “structural remedies” (such as divesting parts of the business) that the CMA favors.

It’s more likely that Microsoft will need to take its chances in the appeals process, for which it will need a deal extension. As urgently as the countdown to July 18 has been ticking throughout this process — emphasized, at all times, by an impatient Microsoft — Harding-Rolls thinks an extension will actually be quite easy to achieve.

“If they are going to wait for the appeal process, I think it’s very likely that the deadline will be renegotiated,” Harding-Rolls said. “Activision is very keen to get the deal done, for obvious reasons, so I don’t think that would be a significant hurdle.” With almost $69 billion on the line, and no apparent change of heart or circumstances in the past year, Activision Blizzard management and shareholders will be strongly motivated to give Microsoft the extra time and see if the appeal goes their way.