By Paul Sandle
LONDON (Reuters) – The decision by Britain’s antitrust regulator to rip up its play book for Microsoft shows the limit of its ability to kill mega-deals on its own, even if some agreed with its opposition to the U.S company’s $69 billion acquisition of Activision Blizzard.
The Competition and Markets Authority (CMA) is increasingly isolated over the Xbox maker’s bid to buy the company behind “Call of Duty” after U.S. regulator, the FTC, failed to block it in court last week.
The FTC is considering its options, a source told Reuters on Monday, but its fight appears to be nearing the end.
The European Union approved the deal in May, when it accepted commitments to license games to rival platforms. Activision announced an expansion in Barcelona the next month.
Microsoft had already lodged an appeal against the CMA’s April block, but that was seen as a tough ask as the court that examines it – the Competition Appeals Tribunal (CAT) – only reviews the process and not the merits of the case itself.
At the same time, Microsoft offered a “detailed and complex” new proposal to the CMA, prompting the regulator to take the unprecedented step of reopening talks.
The CAT agreed to adjourn the appeal on Monday.
The CMA said it was awaiting further Microsoft submissions on what had changed and how it would restructure the transaction.
“We will then consider whether the proposals create a new merger situation and address the CMA’s competition concerns,” a spokesperson said on Tuesday. “We will set out the appropriate process for that in due course.”
A Microsoft spokesperson said: “As we’ve said before, we are considering how the transaction might be modified to address the CMA’s concerns.”
The regulator said on Friday it had already received a “detailed and complex” new proposal from Microsoft that claimed material changes in circumstance.
Lawyer Becket McGrath at Euclid Law said it seemed that the CMA was “looking for a way out of what is a very uncomfortable position”.
“It shows, ultimately, the world that the CMA is in post Brexit, of taking on these global deals,” he said. “When they reach an outcome that the parties and other authorities may disagree with, they’re left looking very exposed.”
Britain’s departure from the European Union in 2020 meant major deals would be judged in London and not Brussels, propelling the CMA into the top tier of antitrust regulators.
Backers of Brexit argued that an ability to innovate in regulation would attract investment in sectors ranging from technology to pharmaceuticals.
But the Microsoft deal has shown how difficult it can be for a British regulator to stick to its guns when the United States and the European Union opt for a different outcome, and when major tech groups lobby Britain’s government.
Tom Smith, a partner at law firm Geradin Partners and previously legal director at the CMA, said the political reaction to the Microsoft block had been “exponentially bigger than any other case I’ve ever seen”.
“I am pretty confident that it has taken the CMA by surprise,” he said. “They would have expected something of course – you can’t block such a high-profile deal without some blowback – but the scale is different than they would have expected.”
CLOSED FOR BUSINESS
After the CMA block, Microsoft thundered that Britain was closed for business; exactly what the government did not want to hear as it tries to reignite the economy after the uncertainty sparked by Brexit.
Microsoft President Brad Smith met Britain’s Finance Minister Jeremy Hunt for talks last month according to a source, and he said later the same day he was “in search of solutions”.
But U.S. tech groups should not have been completely surprised by the CMA’s opposition after it previously signalled a willingness to take bold decisions.
It made headlines in 2021 when it blocked another U.S. companies deal, ordering Facebook-owner Meta to sell the animated images platform Giphy.
Wanting to properly oversee digital markets dominated by Meta, Alphabet, Apple, Amazon and Microsoft, it also set up a Digital Markets Unit (DMU).
The DMU is still awaiting legal powers, but its experts can inform analysis of deals.
“The DMU’s work is internationally acclaimed and its market reports have been really influential,” lawyer Smith said. “I’d say they have pretty much world class knowledge of tech markets.”
However, this independence and willingness to block global deals has caused alarm in some boardrooms.
When one British-based executive at a U.S. tech giant was asked last week what worried his bosses about Britain, he told Reuters: “What the hell is going on with regulation?”
WHAT NOW?
The CMA’s apparent about-turn left many competition lawyers scratching their heads, as it came just over two weeks before it was due to defend to the tribunal its findings, which focused on future-proofing the nascent cloud-gaming market.
Tribunal Judge Marcus Smith said he wanted to know about the “material change in circumstances” that had prompted the CMA to change its view before he gave his full blessing for all sides to work again on the deal.
Gareth Mills, a partner at law firm Charles Russell Speechlys, said the CMA would be trying to rush it through as expeditiously as possible.
“The matter of form is they can’t reopen a decision they’ve already taken,” he said. “But that is what they will be doing in all but name.”
(Additional reporting by Sam Tobin and James Davey; Editing by Kate Holton and Sharon Singleton)
