UK Blocks Microsoft Deal, Raising Questions About Post-Brexit Future

The long-running battle between Microsoft (MSFT.O) and Britain over the Activision Blizzard (ATVI.O) deal took another twist on Tuesday, raising more questions than answers about the country’s approach to deals in the post-Brexit direction. Britain’s Competition and Markets Authority (CMA) has been locked in a dispute with the U.S. software giant over its $69 billion bid to buy the “Call of Duty” maker since it opposed the takeover in April. At that time, the CMA clarified that it was not interested in reversing its decision to block the deal, which would be the largest in gaming history.

The CMA has been concerned that the merger could stifle innovation in the growing cloud gaming market, where games can be played remotely without downloading them on a computer or console. It also cited concerns that the combined company would be able to raise prices or limit choice for gamers. Microsoft said in July that it was willing to rethink its proposal if the CMA could find ways to address these concerns, but the regulator remained firm and rejected the reworked offer.

With the clock ticking down to a deadline to complete the transaction, Microsoft has submitted a new proposal that its president, Brad Smith, described as “substantively different” from what was previously on the table. The CMA will now examine the new proposal and decide by August 29.

But many analysts have thrown up their hands and conceded that the odds of Microsoft successfully appealing the U.K.’s ruling to revive the megadeal are slim to none. “It’s difficult to see how the restructured deal addresses the CMA’s primary concern of lessening competition in the cloud gaming market,” Doug Creutz, an analyst at TD Cowen, wrote in an investor note.

Other experts are skeptical that the new proposal, including a 10-year agreement with Sony to allow the famous Call of Duty series to remain available on the Sony PlayStation game console, will convince E.U. regulators to green-light the deal. The E.U. has already opened a probe into the merger, and it must be convinced that the deal won’t hurt consumers in its own country before it gives the go-ahead.

The battle over the Activision deal highlights a broader uncertainty about Britain’s role in the world and how it will handle future trade agreements. A recent survey showed that the number of people, including Leave voters, who believe the government has mishandled Brexit jumped to 28% in 2022 from just 6% in 2016. Meanwhile, the economy is the worst performer among the G-20 countries over the past year, and a mounting cost-of-living crisis is weighing on Prime Minister Rishi Sunak’s ruling Conservative Party. The combination is causing the Conservatives to fall further behind the main opposition, the Labour Party, in public polling ahead of a general election scheduled for next May.

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