Microsoft and Activision extend $69 billion merger deadline to quell CMA concerns

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In a nutshell: Instead of racing to close its merger with Activision after being handed a legal green light to do so, Microsoft has renegotiated new closing terms with the video game publisher so it can satisfy UK regulators. Under the new plan Redmond has until mid-October.

Earlier this month, Microsoft essentially got the go-ahead to complete its nearly $70 billion merger with Activision after the FTC lost an injunction request. The court’s denial came just in time for the two companies to complete the deal before yesterday’s July 18 deadline. However, the acquisition was still being held up by the UK’s Competition and Markets Authority (CMA).

Microsoft and Activision renegotiated new buyout terms to alleviate the time pressure and the $3 billion breakup penalty. The new deal includes a postponed closing date of October 18. The companies said the three-month delay would allow them time to alleviate “remaining regulatory concerns.”

“Microsoft and Activision Blizzard have jointly agreed to extend the merger agreement deadline from July 18, 2023, to October 18, 2023, to allow for additional time to resolve remaining regulatory concerns,” Microsoft wrote in a brief press release.

Together with @Activision, we are announcing the extension of our merger agreement to 10/18 to provide ample time to work through the final regulatory issues. We will honor all commitments agreed upon with the EC and other regulators and continue to work with the CMA on the…

– Brad Smith (@BradSmi) July 19, 2023

The move virtually hands the FTC what it was asking for from the court, which was more time to prepare a case against the merger. Now the FTC and the CMA have until the middle of October to break the deal unless the Redmond tech titan makes adjustments that resolve the two regulators’ antitrust concerns.

The new agreement also raises the penalty were the deal to fall through. The original termination fee was $3 billion, payable to Activision if Microsoft could not close the deal by July 18. Under the new terms, the breakup fee increases to $3.5 billion on August 29 and $4.5 million on September 15. As long as Microsoft closes the acquisition by October 18, these increases will not matter. However, the applicable penalty will apply if the merger is canceled for any reason before then.

If Microsoft is forced to bow out (because realistically, it’s not going to cancel the deal of its own volition), the penalty windows look like this.

Cancelation:

between now and August 29 – MS owes Activision $3 billion.
between August 29 and September 15 – MS owes $3.5 billion.
between September 15 and October 18 – the fee goes to $4.5 billion.

The likely reason for the new breakup fee schedule is to make it clear that the two companies – both wanting the merger to go through – aren’t gaming the system by arbitrarily extending the originally agreed-upon deadline, which would likely violate the law or SEC and FTC regulations. The changes were filed with the SEC on Tuesday.

Microsoft is positive it can pull off the biggest video game merger in history.

“We are confident about our prospects for getting this deal across the finish line,” Microsoft President Brad Smith tweeted on Wednesday when announcing the renegotiation.

Likewise, TechCrunch notes that Xbox head Phil Spencer penned a memo to staff saying, “Microsoft and Activision Blizzard remain optimistic that we will get our acquisition over the finish line, so we have jointly agreed to extend the merger agreement to October 18, 2023.” Spencer added, “While we can technically close in the United States due to recent legal developments, this extension gives us additional time to resolve the remaining regulatory concerns in the UK.”

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