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UK Regulators Narrow Antitrust Probe of Microsoft – Activision Deal – Merger Arbitrage Mondays

  • March 27, 2023

The Activision Blizzard (ATVI) – Microsoft (MSFT) Deal

The largest tech deal on record experienced a breakthrough in regulatory hurdles on March 24, 2023, when the UK’s Competition and Markets Authority provisionally found that Microsoft’s proposed acquisition of Activision Blizzard “will not result in a substantial lessening of competition in relation to console gaming in the UK.”

On January 18, 2022, Microsoft announced it would acquire Activision Blizzard in an all-cash deal valuing the company at $68.9 billion, or $95.00 per share. The transaction, if approved by regulators, will make Microsoft the world’s third-largest gaming company (behind Tencent and Sony). In acquiring Activision Blizzard, Microsoft gains control over legendary gaming franchises like Call of Duty, Candy Crush, and Warcraft, as well as ATVI’s 400 million player base. Microsoft also unlocks significant opportunities in the mobile gaming market – the largest and fastest-growing gaming segment. 

The deal has been going through multiple regulatory hurdles since it was announced. We wrote about this deal in detail in our January 2023 newsletter titled, InsideArbitrage Special Situations Newsletter: January 2023.

We wrote the following regarding the ‘Regulatory Overview’ of the deal:

On December 8th, the FTC voted 3-1 to file a lawsuit blocking Microsoft’s acquisition of Activision Blizzard. This marks the second major Big Tech suit from the Lina Khan-led agency and establishes a landmark trial over the future of antitrust behavior.

An FTC official stated,

The lawsuit warns that the deal not only could give Microsoft an upper hand in consoles, but also an unfair advantage in more nascent gaming, such as subscription gaming and cloud gaming… The FTC argues that this deal could dampen innovation in these more nascent gaming markets.

The biggest concern here is that Microsoft will prevent competitors from offering games like Call of Duty to their player base, which would limit equitable access to content.

There are several points to consider, the first being the gaming industry’s longstanding history of exclusive content. Since the Atari 2600 and the dawn of consoles, exclusives (and variations such as timed exclusives) have been ubiquitous in the industry. This excellent website provides a comprehensive list of exclusive games for different consoles and highlights how commonplace exclusive releases are in gaming.

Furthermore, Microsoft has been working hard to proactively sign agreements and telegraph its intentions not to limit access to Call of Duty. The company has already signed a 10-year commitment to bring Call of Duty to Nintendo platforms and offered the same commitment to Valve and Sony. Gabe Newell, the co-founder of Valve, responded positively to Microsoft’s offer by saying he doesn’t need an agreement as he knows Microsoft will release games on Steam. Only Sony has yet to respond to the proposal.

Microsoft’s president Brad Smith disclosed the Sony offer in a Wall Street Journal op-ed piece, noting that Sony was the “loudest objector” to the deal. Smith also said that the FTC didn’t allow Microsoft to sit with staff to discuss a “legally binding consent decree” to keep Call of Duty on gaming rivals, including Sony.

The FTC’s press release cited Microsoft’s record of acquiring publishers and limiting game access to rivals, specifically the recent Zenimax merger, after which Microsoft made several titles Microsoft exclusives despite assurances to the contrary. However, following the publication of this document, the European Commission corrected the FTC, stating that:

the conclusion that there are no competition concerns did not rely on any statements made by Microsoft about the future distribution strategy concerning Zenimax’s games.

The full complaint (which can be read here) further reinforces the growing trend of U.S. regulators bringing long-shot cases to court, even when there is a risk of failure. Antitrust issues are typically brought to court over consumer impacts arising from horizontal acquisitions. According to FTC guidelines: “The key question the agency asks is whether the proposed merger is likely to create or enhance market power or facilitate its exercise. The greatest antitrust concern arises with proposed mergers between direct competitors (horizontal mergers)”. Horizontal mergers represent the standard antitrust case, and the agency has gone so far as to create horizontal merger guidelines that provide the agencies’ analytical framework for determining anti-competitive behavior.

Critically, the litigation against Microsoft’s acquisition focuses primarily on the effects arising from vertical integration – a prosecution angle that is seldom used. In fact, the 2018 DoJ case against AT&T’s $85 billion merger with Time Warner (which the DoJ lost) was the first time an antitrust challenge to a vertical merger was litigated in over 40 years.

Anthony Micheal Sabino, a partner at Sabino & Sabino and a professor at St. John’s University School of Law, believes that prosecuting this case will be an uphill battle for the FTC.

I think the government still has this knee-jerk reaction, that bigger means bad,” Sabino said. “Will tech mergers continue? Will there be consolidation in the industry? Sure. But I think, again, there’s going to be a higher level of scrutiny.

On December 22nd, Microsoft released a document responding to the FTC’s complaint against the company. The introductory section arguments are structured around Microsoft’s underdog position in the console and mobile gaming markets, its promise to keep Call of Duty non-exclusive, and its game distribution channels.

On December 17th, the WSJ reported that a hearing would occur in the FTC’s administrative court in August unless a resolution is reached. The FTC’s aggressive response to the ATVI merger was largely expected, as the stock only dropped 1.5% in response to the news and has subsequently traded back up to where it was pre-announcement.

In addition to the pushback from the U.S. regulators, authorities in the UK and EU are also investigating the potential anti-competitive impacts that may arise from the merger. On September 15th, the UK’s Competition and Markets Authority (CMA) referred the acquisition for a phase 2 review and announced an in-depth investigation. Regulators had been meeting with rival Sony and spent weeks deliberating on the transaction. On October 14th, the CMA published its issues statement, which lays out the scope of the investigation.

In response to the CMA’s arguments, Microsoft submitted a lengthy 111-page document addressing each contention in detail. The concerns shared among US, UK, and EU regulators are largely similar, and reading Microsoft’s defense statement provides compelling evidence that the merger stands on firm ground. Among the previous points mentioned above, Microsoft is positioning itself as an underdog in the gaming industry, saying:

Xbox is the smallest of the three console competitors with less than [20-30]% share worldwide and less than [30-40]% in the UK. The other party, in this case Activision, is only the fifth largest competitor of more than a dozen suppliers competing in the upstream market with less than a [20-30]% share worldwide and in the UK.

Activision’s limited share in console publishing (even when combined with Xbox’s own content) is less than [20-30]% worldwide and in the UK combined

PlayStation has more than double the MAUs (close to 60 million more) of Xbox.

This is far from monopolistic, and even competitors such as Tencent’s CEO Strauss Zelnick claim to have no issues with the deal. Zelnick said in an interview with CNBC that: “Generally speaking, I don’t think people are particularly concerned because it remains a fragmented business… We don’t really think the competitive landscape is meaningfully affected in the event that that merger goes through,

Notably, the CMA also released a summary of the responses gathered from the public relating to the CMA’s issues statement. According to the document, “Of the 2,100 emails that we reviewed, around three quarters were broadly in favor of the Merger and around a quarter were broadly against the Merger.” Seeing this level of public support, and the consensus rationale of those in favor of the merger, provides further evidence that regulators may face an uphill battle in proving the merger is anti-competitive.

The last agency to keep an eye on, the European Commission (EC), opened an in-depth investigation into the merger on November 8th. It has until March 23rd to make a decision, and recently released a ~90-page questionnaire to related parties asking about potential measures Microsoft may take to keep Activision Blizzard’s games exclusive to Xbox platforms.

If the merger closes in June as planned, investors will earn roughly $18.45 per share and realize a stellar 48% IRR (assuming a 6/30 close). The upside of a successful buyout is undoubtedly compelling, but what happens if the regulators block the deal? To answer this question, the following section reviews Activision Blizzard as a standalone company and provides a DCF valuation in addition to sell-side analyst estimates.


On March 24, 2023, the CMA stated that it has received a significant amount of new evidence in response to its original provisional findings. Having considered this new evidence carefully, together with the wide range of information gathered before those provisional findings were issued, the CMA inquiry group has updated its provisional findings and reached the provisional conclusion that, overall, the transaction will not result in a substantial lessening of competition in relation to console gaming in the UK.

The most significant new evidence provided to the CMA relates to Microsoft’s financial incentives to make Activision’s games, including Call of Duty (CoD), exclusive to its own consoles. While the CMA’s original analysis indicated that this strategy would be profitable under most scenarios, new data (which provides better insight into the actual purchasing behaviour of CoD gamers) indicates that this strategy would be significantly loss-making under any plausible scenario. On this basis, the updated analysis now shows that it would not be commercially beneficial to Microsoft to make CoD exclusive to Xbox following the deal, but that Microsoft will instead still have the incentive to continue to make the game available on PlayStation.

Martin Coleman, chair of the independent panel of experts conducting this investigation, said:

Provisional findings are a key aspect of the merger process and are explicitly designed to give the businesses involved, and any interested third parties, the chance to respond with new evidence before we make a final decision.

Having considered the additional evidence provided, we have now provisionally concluded that the merger will not result in a substantial lessening of competition in console gaming services because the cost to Microsoft of withholding Call of Duty from PlayStation would outweigh any gains from taking such action.

Our provisional view that this deal raises concerns in the cloud gaming market is not affected by today’s announcement. Our investigation remains on course for completion by the end of April.

The deal was trading at a large spread of 24.1% or over 48% annualized back in January 2023. After the UK regulators dropped their concerns regarding the deal, the spread has dropped to 12.57% or 47.8% annualized if the deal closes by mid-2023.

Amazon’s (AMZN) acquisition of iRobot (IRBT)

Another deal that has been facing regulatory hurdles is the acquisition of iRobot by Amazon. On March 20, 2023, a Politico Report stated that the Federal Trade Commission’s staff attorneys are leaning toward filing a lawsuit to block Amazon’s planned purchase of iRobot.

The Ring cameras and Alexa virtual assistants, have been under consideration based on alleged violations of the Children’s Online Privacy Protection Act. The triangulation of consumer data gathered from “smart homes” by Roomba devices, Ring and Alexa, have also been a matter of concern.

The iRobot deal is being investigated by the European Union for similar reasons. The deal is currently trading at a spread of 39.75% or 109.91% annualized if the deal closes by August 2023.

U.S. Xpress Enterprises (USX)

On March 21, 2023, Knight-Swift Transportation Holdings Inc. (KNX) and U.S. Xpress Enterprises (USX) entered into a definitive merger agreement, under which KNX will acquire USX for $808 million or $6.15 per share in cash, representing a premium of 310% USX’s closing stock price of $1.50 on Mar. 20, 2023.

According to the press release, based on 2022 results, U.S. Xpress is expected to add approximately $2.2 billion in total operating revenue (including $1.8 billion in truckload revenue), 7,200 tractors, and 14,400 trailers to Knight-Swift’s consolidated enterprise. After the transaction, Knight-Swift’s consolidated revenue run-rate is expected to approach $10 billion, while the truckload fleet will have approximately 25,000 tractors and 93,000 trailers.

The current spread on the deal is 3.19% or 9.16% annualized if the deal closes early in the third quarter of 2023.

Merger Arbitrage activity declined last week with two new deals announced, and four deals closing.

You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) which automatically updates itself during market hours.

Merger Arbitrage

Deal Statistics:

Total Number of Deals Closed in 202343
Total Number of Deals Not Completed in 20232
Total Number of Pending Deals
Cash Deals41
Stock Deals13
Stock & Cash Deals5
Special Conditions9
Total Number of Pending Deals68
Total Deal Size$583.47 billion

New Merger Arbitrage Deals:

  1. The acquisition of U.S. Xpress Enterprises (USX) by Knight-Swift Transportation Holdings (KNX) for $808 million or $6.15 per share in cash.
  2. The acquisition of Berkshire Grey (BGRY) by SoftBank for $375 million or $1.40 per share in cash. We added BGRY as a potential deal to the Deals in the Works section on February 10, 2023, and the price after the news of the potential deal came out was $1.48.

Deal Updates:

  1. Argo Group and Brookfield Reinsurance (BNREfiled the required notifications with the Antitrust Division and the FTC on March 8, 2023.
  2. On March 14, 2023, TravelCenters received an unsolicited, non-binding indication of interest fromParty G, a publicly traded fuel supplier and convenience store operator to purchase 100% of the equity interests of TravelCenters for $92.00 per share.
  3. On March 20, 2023, Grindrod Shipping (GRIN) said that effective from March 31, 2023, Stephen Griffiths will be retiring as interim chief executive officer and chief financial officer. The board appointed Edward Buttery as the new CEO and Deborah Davel as CFO, effective April 1, 2023.
  4. On March 22, 2023, TravelCenters (TA) and BP p.l.c (BP) filed notifications of the merger with the Federal Trade Commission and the Department of Justice under the HSR Act, on March 9, 2023. Accordingly, the initial waiting period will expire on April 10, 2023.
  5. On March 24, 2023, UK’s Competition and Markets Authority (CMA) narrowed its probe of Microsoft’s (MSFT) bid for Activision Blizzard (ATVI), provisionally concluding that the merger “could harm U.K. gamers” through higher prices, fewer choices or less innovation. It updated its position, saying new evidence “provisionally alleviates” concerns in relation to the supply of video game consoles in the U.K.
  6. On March 24, 2023, Sumo Logic (SUMO) and Francisco Partners announced that the waiting period under the HSR Act is scheduled to expire on March 27, 2023.


  1. On March 22, 2023, Amryt Pharma Shareholders approved the acquisition of Amryt Pharma (AMYT) by Chiesi Farmaceutici.
  2. On March 22, 2023, Regal Rexnord Corporation (RRX) and Altra Industrial Motion (AIMCreceived all required regulatory approvals to complete the previously announced acquisition. The transaction is expected to be completed on or around March 27, 2023.


  1. March 20, 2023: According to a Politico report, the Federal Trade Commission’s staff attorneys are leaning toward filing a lawsuit to block Amazon’s (AMZN) planned purchase of iRobot (IRBT).
  2. March 22, 2023: According to Financial Times, UK regulator warns on Broadcom’s (AVGO) $69bn VMware (VMW) deal.
  3. On March 22, 2023, U.S. Senator Elizabeth Warren has urged the U.S. Federal Trade Commission to review CVS Health Corp’s (CVS) $9.5-billion acquisition of Oak Street Health Inc (OSH) as well as other merger deals in the sector.

Shareholders Meeting Schedule:

  1. Argo Group International Holdings (ARGO) – April 19, 2023

Closed Deals:

  1. The acquisition of AlerisLife (ALR) by ABP Acquisition LLC on March 20, 2023. It took 45 days for this deal to be completed.
  2. The acquisition of IAA, Inc. (IAA) by Ritchie Bros. Auctioneers Incorporated (RBA) on March 20, 2023. It took 133 days for this deal to be completed.
  3. The acquisition of IsoPlexis Corporation (ISO) by Berkeley Lights (BLI) on March 21, 2023. It took 90 days for this deal to be completed.
  4. The acquisition of EVO Payments (EVOP) by Global Payments (GPN) on March 24, 2023. It took 235 days for this deal to be completed.

Weekly Spread Changes:

The table below shows weekly spread changes between March 17, 2023, and March 24, 2023.

Company Quote
Last Week
Spread Change
GSMG0.6921Cheers Inc (N/A)123.96%105.19%18.77%All Cash
HVBC28.95Citizens Financial Services, Inc. (CZFS)80.411.09%-3.93%15.02%All Stock
GRIN11.25Taylor Maritime Investments Limited and Good Falkirk Limited (N/A)86.67%75.15%11.52%Special Conditions
TCFC33.91Shore Bancshares, Inc. (SHBI)14.52-0.29%-5.16%4.87%All Stock
IRBT43.65Amazon (AMZN)98.1339.75%35.71%4.04%All Cash
TCRR1.5Adaptimmune Therapeutics plc (ADAP)1.110.86%15.97%-5.11%All Stock
ATVI84.39Microsoft Corporation (MSFT)280.5712.57%20.27%-7.70%All Cash
INFI0.2MEI Pharma, Inc. (MEIP)0.2425.39%35.55%-10.16%All Stock
CEMI0.39Biosynex SA (N/A)15.38%28.57%-13.19%All Cash
FHN16.76The Toronto-Dominion Bank (TD)56.5549.16%67.45%-18.29%Special Conditions

Top 10 Merger Arbitrage Deals With The Largest Spreads:

Please do your own due diligence on deals with large spreads. Some of these large spreads might be related to regulatory issues or because of the way the deal is structured. We classify some of these deals as “special situation” deals in our merger arbitrage tool and provide additional details to help with the analysis. There may be unique situations related to special dividends, spinoffs, proration, etc. that need to be accounted for when looking at these spreads.

GSMG07/11/2022Cheers Inc (N/A)$1.55$0.692104/11/2023123.96%2827.75%
GRIN10/12/2022Taylor Maritime Investments Limited and Good Falkirk Limited (N/A)$21.00$11.2503/31/202386.67%6326.67%
SAVE07/28/2022JetBlue Airways Corporation (JBLU)$31.00$16.7806/30/202484.74%66.95%
SIMO05/05/2022MaxLinear, Inc. (MXL)$107.13$65.1206/30/202364.51%245.27%
TGNA02/22/2022Standard General L.P. (N/A)$24.00$15.605/22/202353.85%344.80%
FHN02/28/2022The Toronto-Dominion Bank (TD)$25.00$16.7606/30/202349.16%186.93%
IRBT08/05/2022Amazon (AMZN)$61.00$43.6508/05/202339.75%109.91%
BKI05/04/2022Intercontinental Exchange, Inc. (ICE)$74.65$54.5805/04/202336.77%344.13%
ACI10/14/2022The Kroger Co. (KR)$27.25$20.1903/31/202434.97%34.40%
TSEM02/15/2022Intel Corporation (INTC)$53.00$41.2305/15/202328.55%208.39%

Deals In The Works

Two new potential Merger Arbitrage deals were added to the ‘Deals In The Works‘ section last week.

  1. On March 21, 2023, Echo Lake Capital offered to acquire Quince Therapeutics (QNCX) for $1.60 per share in cash.
  2. On March 24, 2023, Bloomberg reported that BridgeBio Pharma (BBIO) which develops treatments for genetic diseases, is attracting takeover interest from bigger drug companies, according to people familiar with the matter.


  1. On March 20, 2023, Franchise Group, Inc. (FRG) announced that it has received an unsolicited non-binding proposal, to acquire all of the outstanding shares of the common stock of the company for a price of $30 per share in cash.
  2. Stratasys (SSYS) announced that its Board of Directors has unanimously rejected the unsolicited proposal it received from Nano Dimension (NNDM) to acquire Stratasys for $18.00 per share in cash. Nano Dimension to review its options relative to Stratasys and other strategic acquisition targets.
  3. Bloomberg reported that Extra Space Storage (EXR) is weighing making an offer for Life Storage (LSI)  the real estate company that rejected a takeover proposal from Public Storage earlier this year.

SPAC Arbitrage


  1. On March 23, 2023, Oak Woods Acquisition Corporation (OAKUO) priced its initial public offering of 5,000,000 units at $10.00 per unit.

SPAC Business Combination

  1. On March 20, 2023, Heidmar Inc. entered into a definitive agreement for a business combination with Home Plate Acquisition Corporation (HPLT).
  2. On March 21, 2023, Northern Revival Acquisition Corporation (NRACentered into a business combination agreement with Braiin Limited.
  3. On March 22, 2023, Stratim Cloud Acquisition Corp. (SCAQ) and Force Pressure Control announced a definitive business combination agreement.


  1. On March 21, 2023, Zura Bio Limited announced the closing of its business combination with JATT Acquisition Corp, (JATT).

List of all pending Merger Arbitrage deals:

Disclaimer: I have long positions in Oak Street Health (OSH), Activision Blizzard (ATVI), Spirit Airlines (SAVE),  First Horizon (FHN), Tower Semiconductor (TSEM), TEGNA (TGNA) and CVS Health (CVS). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.