MICROSOFT, ACTIVISION EYE U.K. RIGHTS SALE TO GET MERGER DONE

Microsoft and Activision Blizzard are considering giving up some control of their cloud-gaming business in the U.K. as a way to appease regulators so they can complete their $69 billion merger by the July 18 deadline, according to people familiar with the matter.

That could involve selling off the cloud-based market rights for games in the U.K. to a telecom, gaming or Internet-based computing company, said the people, who asked not to be identified discussing confidential planning. A private equity company might also be interested, said one person.

Both companies still think it’s possible to close the deal, which would be the largest ever in the video game industry, before this coming week’s deadline, the people said. Regulators in the U.S. and U.K. have come out against the deal, which would combine one of the biggest video game publishers with one of the largest console makers into an industry behemoth.

It’s currently unclear just how Microsoft will legally be able to close the deal by Tuesday without breaching U.K. laws and incurring large fines from the Competition and Markets Authority. While the CMA said Tuesday it’s prepared to evaluate proposals from Microsoft, the agency also said the companies would need to resubmit their transaction for the normally multi-month regulatory process to begin anew.

But there are options available, according to Tom Smith, a competition lawyer at Geradin Partners and EXCMA legal director.

“It’s all quite debatable, but I believe the most likely route to allowing the deal to close by Tuesday is for the CMA to issue a derogation from its interim order,” said Smith, a competition lawyer at Geradin Partners and EXCMA legal director, referring to the formal notice the deals watchdog issued in May ordering the companies to remain separate pending a final decision.

“They could allow the deal to close but require the Activision Blizzard business to be held separate pending the final order,” he said. “The CMA would look reasonable while preserving their position.”

Spokespeople for Microsoft and Activision declined to comment. The CMA didn’t immediately respond to a request for comment.

The U.S. Federal Trade Commission on Thursday asked a California court to pause the deal while the agency’s challenge is pending. The FTC wanted the 9th Circuit Court of Appeals in San Francisco to overturn a lower-court judge’s July 10 order that cleared the companies to proceed toward their July 18 closure deadline. In a brief ruling Friday, the court’s three-judge panel rejected the bid and concluded there were no grounds for issuing an order that would have prevented Microsoft from completing its nearly 18-month-old deal.

U.S. District Judge Jacqueline Scott Corley earlier rejected the FTC’S request to extend a pause on the deal while the agency appeals her ruling greenlighting the transaction.

In its earlier findings, the U.K. regulator had expressed concerns that adding Activision content to Microsoft’s xcloud service would restrict competition in the nascent market for video games that are streamed over the internet rather than downloaded to consoles or devices. Microsoft offers xcloud as part of a monthly gaming subscription. The CMA has said it strongly prefers structural remedies like a divestiture to behavioral ones, under which the agency must monitor whether a company complies with its promises.

Meanwhile, in a procedural move, separate from this week’s developments, the CMA said Friday it had extended its deadline for issuing a legally final order on the deal until Aug. 29.