What happens next with UK CMA’s block of Microsoft’s Activision deal?

With U.S. Judge Jacqueline Scott Corley siding with Microsoft and choosing not to stop the tech giant’s $68.7 billion acquisition of Activision Blizzard from going through, Microsoft’s road to completing the biggest merger in video game history just got a lot clearer.

The U.S. Federal Trade Commission has yet to conduct its own administrative case arguing against the deal; the case it brought before Judge Corley was simply seeking a temporary injunction against the deal closing while the regulator completed its own process. But the FTC’s case will be conducted in an administrative court that has no power to block the deal. Without the backing of a federal court, it seems likely the FTC will abandon its case, effectively greenlighting the acquisition in the United States.

The European Union has already given its blessing to the acquisition. On May 15, the European Commission announced that it was satisfied with the agreements Microsoft had signed to keep Activision Blizzard games available on rival consoles and cloud gaming services.

But one of the three most powerful antitrust regulators remains opposed to the deal. The U.K.’s Competition and Markets Authority said in April that it would prevent the deal from going ahead, citing concerns over its effect on competition in the small but growing cloud gaming market.

Microsoft and Activision Blizzard have announced they will appeal the CMA’s decision, but there’s a problem: Their deal has a deadline, and it’s coming up really soon.

According to the terms of the deal, Microsoft needs to close its acquisition of Activision Blizzard by July 18. If it misses that deadline, it will need to pay Activision an eye-watering $3 billion termination fee.

That date is before the appeals process in the U.K. is due to begin. Hearings before the U.K.’s Competition Appeal Tribunal start on July 24.

So what does Microsoft do next?

Can Microsoft ignore the CMA and close the deal anyway?

Rumors have persisted that Microsoft might simply ignore the CMA’s order, close the deal anyway, and deal with the consequences. Other “extreme options” that have been floated include withdrawing Activision from the U.K. market or closing its offices in the country in an attempt to bypass the CMA’s ruling.

These options were given credence by a Bloomberg report in June that cited anonymous “people familiar with the discussions” ahead of a meeting between Microsoft president Brad Smith and U.K. government minister Jeremy Hunt. The sources claimed Smith would consider these options seriously with Microsoft’s U.K. legal team.

But games industry analyst Piers Harding-Rolls of Ampere Analysis told Polygon in a recent interview that he thinks this outcome is highly unlikely.

“Although there are quite a lot of rumors swirling around about closing the deal over the CMA’s decision, Microsoft will be thinking long and hard how that could impact future deals it does, the implications for its reputation, and how [the Competition Appeal Tribunal] would view that move,” Harding-Rolls said.

Harding-Rolls pointed out that, while Microsoft is apparently livid about the CMA’s decision, it believes it is getting a fair shake from the CAT. The tribunal is “moving through the appeals process at a comparatively rapid pace and is being accommodating to get it done as soon as possible,” he noted. On June 29, the CAT responded to a request from the CMA to delay the appeal hearings until October by dismissing it out of hand. “We consider that the CMA has not paid sufficient heed to the true public interest in this case — which is the swift resolution of Microsoft’s Notice,” the tribunal said.

Nor does Microsoft underestimate the CMA’s power. It seems likely that the threatened “extreme options,” including ignoring the CMA, are just a negotiating position. In reality, Microsoft would balk at the cost of going through with any of them.

“The CMA’s order is legally enforceable, and it has the power to apply heavy fines,” Harding-Rolls said. “The upheaval and commercial ramifications of closing Activision’s U.K. offices or changing the structure of the company to try and get around the block I consider to be last-resort type of actions. I just don’t see that as a good outcome for anyone, really.”

So what does Microsoft do now? Can it extend the deal deadline?

Microsoft’s preference will still be to close the deal before July 18, and Judge Corley’s decision puts it in a strong position. With the weight of a favorable court ruling behind it, its first port of call will be to see if it can preempt the appeals process and reach agreement with the CMA behind closed doors. “I think Microsoft’s next move would be to try and open up channels of communication with the CMA around the cloud gaming theory of harm, and aim to close before the deadline on July 18,” Harding-Rolls said.

But the CMA’s concern about the acquisition’s potential impact on cloud gaming has been quite strongly worded, and it has been specifically unimpressed by the deals Microsoft has struck with other cloud gaming providers such as Nvidia — the same deals that the EU found satisfactory. In the CMA’s report, there doesn’t seem to be a lot of ground where Microsoft will be able to find agreement. It has already said it will not consider the “structural remedies” (such as divesting parts of the business) that the CMA favors.

It’s more likely that Microsoft will need to take its chances in the appeals process, for which it will need a deal extension. As urgently as the countdown to July 18 has been ticking throughout this process — emphasized, at all times, by an impatient Microsoft — Harding-Rolls thinks an extension will actually be quite easy to achieve.

“If they are going to wait for the appeal process, I think it’s very likely that the deadline will be renegotiated,” Harding-Rolls said. “Activision is very keen to get the deal done, for obvious reasons, so I don’t think that would be a significant hurdle.” With almost $69 billion on the line, and no apparent change of heart or circumstances in the past year, Activision Blizzard management and shareholders will be strongly motivated to give Microsoft the extra time and see if the appeal goes their way.