Britain’s Competition and Markets Authority didn’t say how long such an investigation would take, but any probe could make it difficult for Microsoft to complete its $75 billion acquisition of Activision ahead of the companies’ self-imposed July 18 deadline.
The statement from the CMA points to the delicate spot the agency has found itself in after a U.S. federal judge cleared a path for the merger Tuesday. The U.K. authority, which rejected the acquisition in April, is now the only major regulator currently standing in its way.
The CMA has grown in importance as a global tech regulator since the U.K.’s exit from the European Union. After previously deferring to Brussels on big international deals, the agency is now a potential regulatory risk that companies and antitrust lawyers have to take into account along with authorities in the U.S. and EU.
Its stance on the Microsoft-Activision deal “comes at a challenging political juncture,” said Stavroula Vryna, a London-based antitrust partner with law firm Clifford Chance. She said the U.K. government is eager to present itself as open for business and a potential hub for global tech, and the CMA’s decision has drawn criticism about the impact on tech investments in the country.
The CMA this week said it had asked an appeals tribunal that had been set to hear the case to pause proceedings so it could consider new proposals from the companies to address its concerns.
“Microsoft and Activision have indicated that they are considering how the transaction might be modified, and the CMA is prepared to engage with them on this basis,” the regulator said Wednesday.
Neither side disclosed details of a proposal or a potential timeline. The CMA said discussions with the companies are at an early stage.
Merger experts said it is procedurally possible for the CMA to fast-track an investigation, which could significantly shorten the time frame for dealing with a new proposal.
Antitrust lawyers said the CMA’s apparent willingness to consider new proposals was unexpected.
“It is really an unprecedented and dramatic turn of events,” said Alex Haffner, a partner at U.K. law firm Fladgate. He said the CMA appears to be saying that it is open to a compromise, which might allow the agency to avoid the pending appeal.
The CMA declined to comment on the situation beyond its statement.
The EU approved the deal in May after accepting Microsoft’s behavior-based commitments, while antitrust watchdogs in Japan, China and other markets have also cleared the acquisition.
The Federal Trade Commission had sought to halt the deal but lost its bid for an injunction Tuesday when a judge said the agency hadn’t shown Microsoft’s ownership of Activision games would hurt competition in the console or cloud-gaming markets.
The FTC can appeal the ruling, although that is uncommon for the agency. It can also pursue a separate process to challenge the deal in August.
The CMA’s more prominent role in merger approvals comes with greater scrutiny than the agency has faced in the past. The CMA operates independently from the government and has shown an interest in pushing back against the dominance of large tech companies. But doing so raises the risk of being perceived as antibusiness, especially when its stance differs from those of other major regulators.
Microsoft Vice Chair Brad Smith publicly criticized the CMA earlier this year, saying its decision to block the Activision deal would discourage technology innovation and investment in the U.K. Smith later met with U.K. Chancellor of the Exchequer Jeremy Hunt and with the CMA to discuss the agency’s ruling.
Separately, the CMA was chided by the Competition Appeal Tribunal recently after it asked for Microsoft’s appeal hearing to be delayed. The CMA said its preferred lawyers weren’t available and suggested it would be at a disadvantage in going head-to-head with the tech company’s legal firepower.
“We consider that the CMA has not paid sufficient heed to the true public interest in this case,” the tribunal said in dismissing the CMA’s request for a later hearing. It said many of the CMA’s problems “appear to be self-induced.”
Florian Mueller, an independent analyst based in Munich who has worked with Microsoft in the past, said the CMA appears to be taking a less aggressive stance after its initial decision to block the Microsoft-Activision deal.
“They may have realized that it’s neither a good idea nor feasible to turn the U.K. into a merger graveyard,” Mueller said.
Still, there is precedent for the CMA blocking a global deal.
Last year, the CMA reaffirmed an order forcing Facebook owner Meta Platforms to unwind its 2020 acquisition of social-media animated-images company Giphy, after the appeals tribunal found the agency had made a procedural mistake. The CMA took that ruling into consideration and issued a revised decision that again ordered Meta to sell Giphy.
Antitrust lawyers, though, say the Giphy deal was smaller and didn’t attract the same attention that the Microsoft-Activision decision has garnered.
Finding a resolution might not be easy. Vryna, the Clifford Chance lawyer, said it is difficult to see how Microsoft and Activision could offer a divestment that would be credible from the CMA’s perspective and commercially palatable to the companies.
Meanwhile, if the companies opt to extend the July 18 deadline, Activision could seek to renegotiate the financial terms. Microsoft announced its plans to buy Activision in January 2022 and valued the deal at $69 billion after adjusting for the videogame publisher’s net cash.
—Sarah E. Needleman contributed to this article.
Write to Kim Mackrael at kim.mackrael@wsj.com
