In an outcome that surprised no-one with their ear to the ground, one of the largest and most controversial mergers of 2023 concluded successfully with Microsoft’s acquisition of Activision Blizzard in October this year, drawing a close to the saga that had the potential to have wide-reaching consequences for all industries and affected millions of consumers.
Whilst the merger had got off to flying start, being approved by the European Commission, it soon hit rough waters with the UK CMA and the US Federal Trade Commission both taking steps to block the merger from taking place. Whilst the FTC had to prove its case in court, with its decision being merely interim, the CMA’s decision is binding when it is handed down.
The CMA’s decision in blocking the merger was based on CMA’s differentiation of cloud-based gaming services as a separate market within the gaming industry, with the CMA finding that Microsoft’s ownership of both the Windows OS and a console ecosystem pose a particular challenge to the proposed acquisition. Noting the dominant market position held by Microsoft in the cloud gaming service – 60-70%, according to the CMA – and considering the substantial barriers to entry in this market, the CMA’s concerns were that Activision would not have sufficient incentive to continue to make titles available on other cloud gaming platforms.
The CMA therefore identified a niche sub-market to the gaming market as, critically, the CMA did not find the merger unpalatable as to its potential effect on console gaming generally, in particular in light of the undertakings initially proposed by Microsoft as part of its submission to the CMA. This goes to show that where a nice sub-market exists, one must identify and address any issues or concerns as may arise before approaching the CMA.
Microsoft and the CMA were set for a showdown in the Competition Appeals Tribunal with Microsoft alleging that the CMA had erred in its understanding of law and fact, as well as its own powers, with the CMA also failing to take into account the effect on the industry and the solutions being offered up by Microsoft. This was arguably one of the most anticipated hearings of the year, however alas, consensus was reached.
Following the FTC’s failure to block the merger in the US courts and Microsoft offering up revised solutions to the CMA, including divestment and guarantee of continuing to provide titles to other providers, CMA proceeded to withdraw its objection paving the way for Microsoft to complete the $69billionacquisition.
Whilst CMA’s active role in regulating market and taking on the heavyweights, as it has now done with Amazon, Apple, Meta and now Microsoft is a welcome protection for consumers, the CMA must nonetheless ensure that it strikes the right balance so as not to restrict healthy competition nor should it seek to regulate unregulated sub-markets as it has sought to do in the present case.
Whenever you hold a substantial market share it is critical to ensure that any acquisition is considered at the outset from the point of view of completion law. This is particularly critical if your business operates in, what can be deemed, a niche market or sub-market whereby your business may have a substantial share of that sub-market.
Before committing to any acquisition which may result in a lessening of competition in the market, it is critical to ensure that ready-made solutions are offered up to the CMA from the outset and for the CMA to be involved in the process throughout so as to ensure that you do not commit to a transaction which ultimately may not be possible to complete or which will require substantial restructure and result in breaches of contractual obligations. Our corporate lawyers advise businesses from across the UK and Europe on their strategic acquisitions and have worked closely with the CMA in the past. Building on this experience, we can offer solutions to meet your needs.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
Call us now to discuss your case 0330 107 0106 or email us at business@imd.co.uk.
Talk to us today 
0330 107 0106
CONTACT US TODAY