Microsoft and Activision Blizzard extend merger deadline to October 18

Move will give companies more time to win approval from UK authorities and includes new termination fees of up to $4.5bn

A Microsoft acquisition of Activision Blizzard will give it access to a stable of popular titles, which include Call of Duty, Crash Bandicoot, Diablo, Guitar Hero, World of Warcraft and Candy Crush Saga. Reuters
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Microsoft and video game company Activision Blizzard have agreed to extend the deadline for the completion of their merger to October 18, giving them more time to win approval from UK antitrust authorities.

The companies had a huge victory last week after a US appeals court stopped the Federal Trade Commission from blocking the $69 billion acquisition.

This followed approval from EU regulators in May – meaning only UK authorities stand in the way of finalising the world's largest gaming deal, an all-cash transaction at $95 per share.

The terms of the extension agreement also include an increase in the termination fee, which would be payable to Activision Blizzard, to $3.5 billion from $3 billion if the transaction is terminated after August 29, the California-based company said in its second-quarter earnings statement on Wednesday.

The fee would then rise to $4.5 billion if the deal is terminated after September 15, the maker of the popular Call of Duty games said.

The agreement also includes changes to Activision Blizzard’s commercial arrangements with Microsoft's Xbox gaming platform, which is valued at up to $250 million for each of fiscal years 2023 and 2024, it said.

“While we continue to have concerns about the economy and growing industry competition, we remain focused on the long-term opportunities ahead and completing our merger with Microsoft,” said Bobby Kotick, chief executive of Activision Blizzard.

Antitrust regulators have sought to block the deal between Microsoft and Activision Blizzard, arguing that it might harm competition, particularly in the highly competitive cloud gaming space.

However, the companies have been working hard to push the deal through. A merger would give Microsoft access to Activision Blizzard's stable of popular titles including Crash Bandicoot, Diablo, Guitar Hero, World of Warcraft and Candy Crush Saga.

In the case of the EU, Microsoft put forward remedies to concerns from European Commission officials, centred on 10-year free licensing deals, which allow users to stream Activision games they purchase on any cloud streaming platform.

The US FTC, meanwhile, is concerned that a merger would prevent Activision’s most popular games from being available on rival consoles or services.

This most notably includes Sony's PlayStation, which competes with Microsoft's Xbox in the upper echelon of the video gaming industry.

Tokyo-based Sony was among the most vocal critics of the Microsoft-Activision Blizzard deal, but eventually gave in after it agreed this week to a 10-year deal with Microsoft to keep Call of Duty, considered Activision Blizzard's crown jewel, on PlayStation consoles.

Gaming has become a big business globally, gaining traction during the Covid-19 pandemic in 2020, with new-age technology, most notably the cloud, providing both an opportunity to reach a wider audience and develop new titles to cater to consumer demand.

Global games market revenue hit nearly $183 billion in 2022, down 5.1 per cent from the previous year, with revenue from mobile gaming, which relies heavily on the cloud, comprising nearly half at $91.8 billion, the latest data from industry tracker Newzoo shows.

Activision Blizzard did not provide further details on the merger extension. Microsoft has not released a statement on the agreement.

“In light of the proposed transaction with Microsoft, and as is customary during the pendency of an acquisition, Activision Blizzard will not be hosting a conference call, issuing an earnings presentation, or providing detailed quantitative financial guidance in conjunction with its second-quarter 2023 earnings release,” it said.

For the second quarter of 2023, Activision Blizzard's net income more than doubled to $587 million, from $280 million a year earlier, the company said. Net bookings from in-game purchases exceeded $1 billion for the first time.

Revenue in the three months to the end of June jumped more than a third to $2.21 billion, from $1.64 billion a year earlier.

Activision Blizzard's board of directors have also declared a cash dividend of $0.99 per share of the company’s outstanding common stock, payable on August 17, to shareholders on August 2.

Updated: July 19, 2023, 3:21 PM