Britain's Competition and Markets Authority (CMA) on Wednesday blocked Microsoft's (MSFT.O) $69 billion acquisition of 'Call of Duty' maker Activision Blizzard (ATVI.O) over concerns it would hinder cloud gaming.
The ruling was a shock after the regulator had already resolved its concerns about the consoles market, a sector dominated by Sony's PlayStation and Microsoft's Xbox, which dwarfs cloud gaming.
IS THE DEAL DEAD?
Not necessarily. Microsoft said it remained fully committed and would appeal.
The regulator's decision reflected a flawed understanding of the market, it said.
HOW DOES THE APPEAL PROCESS WORK?
Microsoft can appeal to Britain's Competition Appeal Tribunal (CAT), an independent judicial body, which will only examine the CMA's decision-making process, not the merits of the merger.
Microsoft will not be able to offer new remedies at this stage, such as offering to keep Activision content off its Xbox Game Pass, a subscription service for Xbox users, in Britain, as some analysts suggest.
"The CAT will not engage with the merits of the CMA's decision or conduct a wholesale review of the parties' evidence," said Edward Lane, senior associate at law firm Harbottle & Lewis, where his particular focus is on creative industries, including film, TV, video games and music.
Microsoft must appeal by May 24 and a decision may take many months.
"The CAT aims to deal with 'straightforward' cases in under nine months – and Microsoft/Activision is anything but straightforward," Lane, said.
WHAT HAPPENS IF MICROSOFT WINS?
The Tribunal will return the case to the regulator for further review. Microsoft can then offer new concessions.
"The likelihood is that without a material change in circumstances or new evidence, the CMA is most likely to reach the same conclusion as it did first time around," said James Groves, a competition associate at European law firm Fieldfisher.
WHAT ABOUT OTHER REGULATORS?
European regulators will rule on the world's biggest gaming deal by May 22. The U.S. Federal Trade Commission filed a complaint to block the deal, which Microsoft has indicated it will fight.
If either of those blocks the deal, it could be game over, Lane said.
If the EU goes against it, Microsoft would be fighting an increasingly uphill battle and could decide to cut its losses, even if that would mean paying Activision a hefty $3 billion break fee.
WHAT HAS HAPPENED TO OTHER CMA APPEALS?
Facebook-owner Meta (META.O) appealed a 2021 decision by the CMA to block its acquisition of Giphy, seen as a test case for the British regulator's resolve to take on "Big Tech".
Meta succeeded on a single procedural ground, with the decision otherwise upheld. The CMA considered new submissions, but it came to the same view and Meta had to sell animated images platform Giphy.
Global financial services company FNZ appealed a block on its 2019 merger with rival GBST. The regulator then "identified certain potential errors" in its investigation chaired by Martin Coleman, who also oversaw the Microsoft-Activision case.
The CAT sent the case back to be reconsidered, and the CMA agreed to accept a new remedy whereby FNZ could sell GBST and then buy parts of it back.