Extension in Deal Deadline: A Strategic Move
The deadline extension to October 18 was announced by Activision Blizzard (NASDAQ: ATVI) and Microsoft (NASDAQ: MSFT) on Wednesday. The shift in the schedule was necessary as the companies aim to secure UK approval for the most significant gaming acquisition ever. The initial deadline of July 18 was missed due to US regulators' resistance to the deal and Britain's pressure to restructure it. According to Microsoft President Brad Smith, this extension offers enough room to address the remaining regulatory issues.
Rising Termination Fee: Keeping Activision Committed
Microsoft also hiked the termination fee that it owes Activision in the event the deal falls through. The fee has been raised from $3 billion to $3.5 billion if the deal isn't closed by August 29, and it further escalates to $4.5 billion after September 15. According to Reuters, Microsoft's move aims to deter Activision from being tempted by another potential buyer or having second thoughts about the deal.
The Power of the Deal: Transforming the Gaming Landscape
If the takeover is successful, Microsoft, the Xbox maker, will gain a competitive edge in the gaming market. Its newfound strength will come from gaining control over popular titles like "Call of Duty" and "Diablo," allowing it to contend more effectively with competitors like Tencent and Sony (NYSE: SONY). Activision has already surpassed market estimates for Q2, mainly driven by the successful revival of the Diablo franchise.
Concerns of Regulators: Hindrances to the Deal
The timeline extension emerged amid ongoing regulatory concerns from the UK and the US. The US's Federal Trade Commission (FTC) worried that the deal might enable Microsoft to degrade Activision's game quality, manipulate pricing, or alter terms of access to content on rival consoles like Sony's PlayStation and Nintendo. The UK's Competition and Markets Authority (CMA) questioned if the deal could stifle competition in the cloud gaming industry. Microsoft attempted to allay these concerns by offering 10-year licensing deals to rivals post-acquisition.
Proposed Solution: Business Restructuring in the UK
As a response to the UK regulator's apprehensions, Microsoft is considering a restructuring of its UK business. Analyst Michael Pachter from Wedbush suggests that Microsoft could segregate Game Pass as a standalone unit operating only in the UK. By maintaining the status quo there, Microsoft could likely win the CMA's approval. The tech titan has also inked an agreement with Sony Group to keep "Call of Duty" on PlayStation, Xbox's major competitor.
