Microsoft and Activision Blizzard on Wednesday delayed their $69 billion mega-merger for another three months as the two companies scramble to receive approval from British regulators.
Microsoft announced its plans to acquire the video game publisher in early 2022 and originally set a deadline of July 18 this year to close the deal. The companies now hope to close the agreement by Oct. 18, as they attempt to overcome antitrust concerns and finalize the pact.
The deadline extension came with an escalated breakup fee should either side scrap the acquisition, Reuters reported. The fee payable by Microsoft will increase from $3 billion at the end of August to $3.5 billion and then $4.5 billion if the deal does not close by September 15th.
“The extension of the merger agreement is to provide ample time to work through the final regulatory issues. We are confident about our prospects for getting this deal across the finish line,” Brad Smith, president of Microsoft, said on Twitter.
“While we continue to have concerns about the economy and growing industry competition, we remain focused on the long-term opportunities ahead and completing our merger with Microsoft,” said Bobby Kotick, CEO of Activision Blizzard.
The main issue competitors have raised with the acquisition is that the combined entity will have too much control over the video game industry, potentially hindering competition in the cloud gaming segment. To address these concerns, Microsoft agreed to provide 10-year licensing deals to rivals and recently signed an agreement with Sony Group to keep ‘Call of Duty’ on PlayStation.
The F.T.C. has opposed the deal in the agency’s administrative court, warning it may keep ‘Call of Duty’ off Sony’s popular PlayStation console, and requested a federal judge to postpone it. In the United Kingdom, the Competition and Markets Authority moved toblock the deal in April, stating it could harm consumers who streamed games online.
The European Union gave the merger deal the green light in May after Microsoft agreed to offer Activision games on other streaming platforms. In the U.S., the federal judge ruled against the F.T.C.’s attempt to halt the acquisition, while an appeals court rejected the agency’s request.
“The recent decision in the U.S. and approvals in 40 countries all validate that the deal is good for competition, players and the future of gaming,” an Activision Blizzard representative stated. “Given global regulatory approvals and the companies’ confidence that CMA now recognizes there are remedies available to meet their concerns in the U.K., the Activision Blizzard and Microsoft boards of directors have authorized the companies not to terminate the deal until after October 18. We’re confident in our next steps and that our deal will quickly close.”
The proposed takeover by Microsoft is part of the tech giant’s strategy to boost its firepower and leverage Activision’s popular franchises such as “Call of Duty” and “Diablo” to increase its presence in the video game world.
On Sunday, Microsoft also said it had reached an agreement with Sony to keep ‘Call of Duty’ on PlayStation for 10 years, which resolved the biggest concern the F.T.C. raised in court.
Activision Blizzard reported second-quarter financial results this week, posting revenue of $2.21 billion and generating $590 million in operating cash flow for the quarter.
“We expect to deliver strong financial performance for the full year, driven by the successful reinvigoration of the Diablo franchise,” said Kotick.
Microsoft and Activision have been negotiating with the British antitrust regulator to reach an arrangement that would resolve regulatory concerns. Although there remains a chance that the two companies will be able to complete the deal, the new extension signals that they need more time to come to a satisfactory solution.
It remains to be seen whether Microsoft and Activision will be granted the approval to close the multi-billion dollar deal by October 18. What is certain is that the industry watches closely the fate of this transaction, as the potential of the combined forces in the video game world is immense and has the power to change the industry as we know it.