Britain’s competition regulator said on Wednesday a restructured deal between Microsoft MSFT-Q and Activision Blizzard ATVI-Q could satisfy its concerns, subject to a new investigation, marking a climbdown in its opposition to the biggest gaming deal in history.
The Competition and Markets Authority (CMA) in April became the first regulator to block the $69-billion deal, but it appeared to offer an alternative outcome on Tuesday after a U.S. court ruling saying the deal could go ahead left Britain’s regulator isolated.
On Wednesday, it said that while merging parties could not submit new remedies once a final report has been issued: “they can choose to restructure a deal, which can lead to a new merger investigation.”
“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.”
It added that the discussions were at an early stage and the timing of next steps would be determined in due course.
The CMA’s decision to agree to reconsider the deal at this stage, when an appeal was imminent, has surprised advisers on the deal and many competition lawyers.
“It is really an unprecedented and dramatic turn of events,” said Alex Haffner, competition partner at U.K. law firm Fladgate.
One source close to the deal, who asked not to be named, said they were surprised by the CMA’s decision, saying it looked like the U.K. regulator did not want to stand alone from the two big jurisdictions of the European Union and the United States.
Becket McGrath, a partner at Euclid Law, said it seemed like the CMA wanted a way out of an “uncomfortable position”.
Microsoft and Activision will now need to navigate a tricky path, submitting a proposal that does enough to satisfy the British regulator while remaining aligned with remedies already accepted by the European Union.
The two U.S. companies had agreed to a deal deadline of July 18, with Microsoft liable to pay a $3-billion breakup fee if it fell through. Still, with the larger $69-billion deal back on track, the two sides are now focused on modifying the deal to obtain regulatory approval.
Jonathan Compton, partner at law firm DMH Stallard and a specialist in competition law, said it was difficult to see what structural alterations the company could make.
“Were it to do so, it could face fresh inquiry from the FTC and or the Commission,” he said, of the U.S. and EU regulators.
Euclid’s McGrath added: “how do you reset the clock just for the CMA process without resetting the clock everywhere?”
Britain’s competition regulator has not given any further clarification on its U-turn or the new investigation, including whether it would fit into its Phase 1 and 2 process, the latter of which can take up to a year.
When CMA top boss Sarah Cardell in April announced the decision to block the deal, she was asked repeatedly if there was any way it could still go ahead.
“We have taken a decision to block the deal,” she had said.