By Paul Sandle and Kate Holton
LONDON (Reuters) - The long-running battle between Microsoft (NASDAQ:MSFT) and Britain over the Activision Blizzard (NASDAQ:ATVI) deal took another twist on Tuesday, raising more questions than answers about the country's approach to deals in the post-Brexit era.
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.
It had said in July, just minutes after the U.S. regulator failed in its own effort to stop the takeover in court, that it was willing to look again at the case when Microsoft returned with a "detailed and complex" proposal.
On Tuesday it said it would stick to its original decision to block it.
But it will look at a separate restructured deal put forward by Microsoft, in which Activision would divest its cloud streaming rights to a third party - France's Ubisoft Entertainment - excluding in the European Union.
The carve-out is designed to not upset a deal with Brussels for Microsoft to license content to rival cloud services.
EU antitrust regulators said in response they would now look at whether the new terms would affect the concessions they had already agreed with the U.S. company.
Ronan Scanlan, a competition lawyer at Arthur Cox in Dublin, who previously worked for the CMA, said no one was well-served by the "uncertainty and confusion" in Britain.
"Some may say that the CMA has bent over backwards to accommodate Microsoft, others that this is the consequence of the CMA having over-reached in the first place," he told Reuters.
TOUGH STANCE
The CMA had objected to the world's biggest gaming deal over concerns it would hinder competition in the nascent cloud gaming sector, and said that a Microsoft offer to make Activision's games available on rival leading cloud gaming platforms was not enough to remedy its concerns.
The decision underscored the tough new stance the CMA was taking against big technology after it became a standalone regulator following Britain's departure from the European Union.
Gustaf Duhs, a former CMA lawyer and competition lead at Stevens & Bolton, said the new proposal had moved beyond behavioural remedies, which the CMA had never liked, to something closer to a structural remedy.
"But it's not a clean structural remedy because there's still fundamentally a link between the activities of Microsoft and Ubisoft, and it's limited rights that are being transferred," he said.
The CMA could seek assurances on how Ubisoft would be able to use the rights, which would take the concession back into behavioural remedy territory, he added.
Scanlan said under the newly proposed deal the merged Microsoft-Activision would offer the gaming content to only one player, which will be allowed to commercialise the rights to other cloud gaming service providers.
He said the question must be asked if the time it has taken to get to this point has been well-spent for all parties involved. "Few, other than perhaps the CMA, would answer in the affirmative," he said.
Antony O'Loughlin, head of litigation at law firm Setfords, agreed. "For Microsoft and other regulators, this likely represents an unnecessary step the company's been forced to take by an overzealous UK regulator, which still hasn't green-lighted the deal," he said.
The fate of Microsoft's deal in Britain has brought in to question whether the CMA has the power to kill a megadeal if it is not in tune with the United States, European Union and China.
The CMA's block in April drew fury from the merging parties, with Microsoft saying that Britain was closed for business.
It said on Tuesday that it had not felt any political pressure over its handling of the deal.
Tom Smith, a partner at law firm Geradin Partners and previously legal director at the CMA, said both sides would portray the outcome as a win, with the CMA securing concessions that no other agency had achieved.
The CMA will also avoid having to defend its original block in court, and Microsoft finally looks set to secure its deal.
"The process has been tortuous, and there's still possibly scope for the wheels to come off, but we shouldn't expect Big Tech deals to sail through nowadays," Smith said.
The CMA will now review the new proposal, with a deadline for an announcement by Oct. 18. It could order a much longer inquiry if it finds it still has competition concerns.