Published on Mar 21, 2023
Microsoft makes formal EC remedy offer. Microsoft (MSFT) last week offered formal concessions to the European Commission in connection with its planned takeover of Activision Blizzard (ATVI). The Brussels-based regulator will seek third-party feedback on the offer.
The offer is said to address only the commission’s concerns about cloud gaming, indicating the EC may have dropped its misgivings about game consoles, as well as PC operating systems.
In opening the phase 2 probe, the commission said the following about cloud gaming: “When it comes to multi-game subscription services and/or cloud game streaming services in particular, the commission is concerned that, by acquiring Activision Blizzard, Microsoft may foreclose access, to the detriment of its rival distributors of console and PC video games that offer such services, to its own PC and console video games, which are key for the provision of the nascent services of multi-game subscription and cloud game streaming.”
The immediate impact of the remedy submission is an extension of the commission’s phase 2 deadline, which is now May 22. That all but guarantees the EC’s final decision will come after the Competition and Markets Authority publishes its final report, which is due by April 26.
Microsoft, as expected, has focused its efforts on achieving regulatory approval with access, rather than divestiture, commitments.
A spokesperson for Microsoft said in reference to recent access deals with rival gaming companies, including Nintendo, that Microsoft promised to sign, “We are now backing up that promise with binding commitments to the European Commission, which will ensure that this deal benefits gamers into the future.”
In an action-packed week, Microsoft announced two more cloud gaming deals aimed at establishing that it would share access to Activision’s wildly popular first-person shooter game Call of Duty. First came the Boosteroid partnership announcement, closely followed by a tweet by Microsoft Gaming CEO Phil Spencer that the company had signed a partnership deal with Ubitus.
Yet Microsoft’s recent partnership frenzy begs the question: Why didn’t this happen last year when the company stood a chance of warding off a commission Statement of Objections? The Capitol Forum has previously reported on the possible benefits such early action could have reaped.
But that wasn’t the end of last week’s Microsoft/Activision news. The CMA, arguably the central player in the regulatory process, published responses to its provisional findings, including from Microsoft, Activision and Sony.
Those responses read as expected. Sony wants the deal blocked, while Microsoft and Activision take issue with the CMA’s assessment, especially concerning the perceived competitive importance of Activision’s content and the limitations of cloud gaming.
Notably, the CMA and FTC think the transaction would result in competitive harm to the market for the supply of console gaming services.
Microsoft, though, has taken issue with the UK competition authority’s math in demonstrating the buyer’s incentive to curtail access to Call of Duty.
A Microsoft spokesperson said in a statement: “Unfortunately, there are clear errors in the figures being used to value the small number of Sony customers who might move to Xbox in the absence of Call of Duty,” adding that, “as we’ve always said, any realistic modeling of the true cost of removing CoD from PlayStation players clearly demonstrates that there is absolutely no financial incentive for us to do so.”
CMA guidance, however, appears to play down the importance of economic evidence in fast-developing markets, which could include cloud gaming. The authority says it will “focus on a qualitative assessment in complex and dynamic markets, where firms’ current positions and margins may not be a good guide to the future, and strategic considerations may play a greater role.”
Of broader significance is Microsoft’s statement that “vertical concerns based on input foreclosure are rare and the CMA has found a substantial lessening of competition on such a basis in only three phase 2 cases.” That’s true and possibly why in its recently revised merger assessment guidelines, the authority said that “a number of commentators continue to warn of the substantial risks of under-enforcement against vertical mergers.”
UnitedHealth/Emis deal draws CMA concerns. The CMA Friday took issue with UnitedHealth Group’s (UNH) plan to purchase health care software and systems provider Emis Group (EMIS: LN) and has given the buyer five working days, until Friday, to propose remedies if it’s to avoid an in-depth investigation.
UnitedHealth plans to offer remedies. A spokesperson for Optum UK, UnitedHealth’s British unit, said, “With the full support of Emis, we look forward to working with the CMA to agree upon suitable undertakings in lieu of reference to Phase 2 and obtaining the clearance necessary to successfully close our acquisition of Emis.”
An Emis statement said the buyer would “with the full support of Emis…engage with the CMA with the objective of agreeing suitable undertakings in lieu of a phase 2 reference.”
If UnitedHealth does offer concessions, the CMA would have until March 31 to decide whether to consider the offer or refer the deal for an in-depth probe.
The Capitol Forum has reported that Optum and target company Emis supply software technology used by the UK’s National Health Service, a sensitive area for the British government and one the CMA watches closely.
The CMA thinks the deal could harm competition in two areas: population health management and medicine-optimization software. In a statement on Friday, the regulator expressed concern that the merger could “impact services provided by Optum’s competitors” because “Optum and its competitors rely on digital connections to the data that Emis holds, and integrations with Emis’s electronic patient record system.”
Population health management involves data analytics and advisory services used by the UK’s National Health Service to improve overall health care and health services. Medicine-optimization software is used by doctors when prescribing pharmaceuticals.
That UnitedHealth plans to offer concessions is a positive sign for the deal’s chances to be completed. But getting proposed remedies accepted by the CMA can be complicated. The authority doesn’t like behavioral commitments in the best of times. In phase 1, behavioral remedies—while not impossible—are even more challenging.
CMA guidance says that the authority “is generally unlikely to consider that behavioural [undertakings] will be sufficiently clear cut to address the identified competition concerns.” The CMA goes on to say that it “does not inevitably refuse behavioural remedy offers, in particular where divestment would be clearly impractical or is otherwise unavailable.”
For Optum/Emis, a divestiture appears possible. In that case, the question would be how broad any asset sale must be to satisfy the authority. “The CMA will normally seek to identify the smallest viable, stand-alone business that can compete successfully on an ongoing basis and that includes all the relevant operations pertinent to the area of competitive overlap,” its guidance says.
Emis said it expects to provide a further update on or around March 31.
EC extends Broadcom/VMware probe. The EC has extended its phase 2 review of Broadcom’s (AVGO) $61 billion plan to buy VMware (VMW) by 10 working days, to June 21. Both the commission and Broadcom agreed to the additional time, as per the regulator’s merger review rules.
Broadcom will no doubt use the time to argue that the VMware takeover isn’t anticompetitive and that the deal shouldn’t draw a statement of objections. But that could be something of an uphill struggle. The CMA recently expressed concerns about the transaction in a phase 1 issues letter, and The Capitol Forum has reported that FTC staff has been encouraging some industry players to sign declarations or participate in investigational hearings, signaling that a lawsuit to block the merger is under consideration.
If the EC decides to issue a charge sheet, the extension means it could land either just before or after the commission’s Easter vacation from April 6 through April 10.
This week the CMA will announce its phase 1 conclusion on the deal. Again, Broadcom will have made its case for an unconditional approval in London, but such outcome appears to be a long shot given the level of resistance the deal is facing from other competition agencies and third parties.
The CMA’a phase 1 deadline is Wednesday.
Microsoft urged to end alleged unfair software licensing. CISPE, an association of European cloud infrastructure providers, has called on Microsoft to stop its “unfair software licensing terms,” which prevent customers from running software on cloud platforms of their choice.
In November, CISPE filed a formal complaint against Microsoft at the EC. It followed an earlier joint complaint by French firm OVHcloud, Italian company Aruba and Danish Cloud Community, an association of Danish cloud companies.
“With multiple complaints against it, now is the time for Microsoft to act to ensure that all customers benefit from a principle-based approach to fair software licensing,” CISPE said in a blog post on Friday.
In October, Microsoft made changes to its software licensing terms. But “for hundreds of thousands of European customers nothing has changed and they continue to pay an unfair software licence tax,” CISPE said.
Microsoft told The Capitol Forum that it’s open to resolving CISPE’s outstanding concerns.
“More than 60 European cloud providers have taken advantage of opportunities enabled by the changes to our software licensing terms and our new partner program introduced last fall,” a company spokesperson said in an email. “As promised, we continue to listen and learn and will be further refining our terms and partner program to meet the needs of cloud providers. We are open to discussing and resolving any remaining valid concerns of CISPE.”
EC approves Belgian telecom merger. The EC today conditionally approved Orange’s (EPA: ORA) proposed acquisition of Belgian cable operators VOO and Brutélé following an in-depth probe. To secure that clearance, Orange committed to providing rival Telenet with access to parts of its network infrastructure for at least 10 years.
EU court clarifies abuse of dominance rules related to completed mergers. National competition authorities in the EU can initiate abuse of dominance investigations into completed mergers that don’t meet the EC review thresholds when the completed deal has substantially impeded competition, according to the bloc’s highest court.
Such mergers “may be subject to a control by the national competition authorities and by the national courts, on the basis of the direct effect of the prohibition of abuse of a dominant position laid down by EU law, having recourse to their own procedural rules for that purpose,” the Court of Justice of the EU ruled on Thursday.
The case goes back to 2016, when French terrestrial television broadcasting monopoly TDF acquired rival Itas. Towercast, a TDF rival, complained to France’s competition agency about the merger, saying it significantly reinforced TDF’s dominant position. The agency rejected the complaint, and French judges eventually referred the case to the EU court.
“When carrying out such a subsequent control in the light of the prohibition of abuse of a dominant position, the authority in question must verify whether a purchaser who is in a dominant position on a given market and who has acquired control of another undertaking on that market has, by that conduct, substantially impeded competition on that market,” the EU court ruled.
Asda’s planned purchase of gas stations raises CMA concerns. Asda’s completed acquisition of 132 gas stations from Co-op would create competition concerns in 13 locations, the CMA said last week. The agency said that the two companies compete in these 13 locales in selling gasoline and groceries.
The CMA will refer the deal for an in-depth review unless the parties offer acceptable undertakings.
MásMóvil subject to Spanish probe over failure to cooperate. Spain’s National Markets and Competition Commission, CNMC, is investigating telecom company MásMóvil for allegedly providing incomplete or false information during the CNMC’s initial proceedings on the need to notify its purchase of regional operator Ahí+, the agency said on Friday. The matter under scrutiny took place in 2022, the CNMC said.
The CNMC has three months to conduct its investigation and reach a decision.
CMA opens probe into acquisitions of veterinary practices. The UK’s antitrust regulator on Friday opened phase 1 reviews of 17 completed acquisitions of independent veterinary practices by veterinary chain Medivet Group.
The CMA issued initial enforcement orders for the veterinary practice acquisitions in December and will accept public comments on its investigation until March 31.
Watford, Hertfordshire-based Medivet has more than 400 branches across the country and “has experienced rapid growth in recent years, both organic and through acquisition of new clinics,” according to its website. Private equity firm CVC Capital Partners bought a majority stake in the company in 2021.
Swiss government brokers emergency UBS/Credit Suisse merger. UBS (UBSG:SW) yesterday announced it would acquire rival Credit Suisse (CSGN:SW) in a move that echoed the 2008 UK rescue deal between Lloyds TSB Group and HBOS, a merger that required a new public interest ground addressing financial stability to be added to the Enterprise Act.
In 2008 the UK parliament passed an emergency amendment to the act allowing the approval of potentially anticompetitive mergers necessary to maintain the stability of the UK’s financial system.
The Lloyds/HBOS merger was agreed in the wake of the 2008 financial crash. The transaction was completed following an intervention from the UK Secretary of State for Business, Enterprise and Regulatory Reform despite a finding by the country’s competition watchdog that the deal likely would result in a substantial lessening of competition.
Vestager’s Weekly Calendar
To view EC Commissioner for Competition Margrethe Vestager’s schedule for the week, click here. On her agenda is a meeting on Wednesday in Brussels with chief executive officers of the European Tech Alliance, which represents Booking.com, Klarna, Spotify and Trivago, among others.
Upcoming Events
April 17-18: “32nd Annual IBA Communications and Competition Law Conference,” an in-person conference in Rome organized by the International Bar Association. Scheduled speakers include Rita Wezenbeek, director of platforms at the EC’s Directorate-General for Communications Networks, Content and Technology; Lea Zuber of the EC’s Directorate-General for Competition; Philip Marsden, a deputy chair at the CMA; Carel Maske, senior attorney at Microsoft.
April 20 at 5 a.m. EDT (10 a.m. CET): Informa’s “EU Competition Law,” an in-person conference in Dublin. Scheduled speakers include John O’Flaherty, senior legal adviser at Ireland’s Commission for Communications Regulation, and Judy O’Connell, senior competition and regulatory affairs manager at Three Ireland.
April 25-26 at 5 a.m. EDT (10 a.m. CET): Informa’s “Advanced EU Competition Law,” an in-person conference in London. Scheduled speakers include Michael Grenfell, executive director of the CMA; Juliette Enser, CMA senior director, cartels; Jacques Steenbergen, president of the Belgian Competition Authority; Konrad Ost, vice president of Germany’s antitrust agency, the Bundeskartellamt.
Recent Developments
CMA extends Hitachi/Thales case. The CMA has extended the case timeline for Hitachi Rail’s proposed acquisition of Thales’ ground transportation systems business. The main-party hearings are to be held at the end of April or beginning of May, with a mid-May deadline for parties’ submissions before the provisional findings. Those provisional findings are due in early June, with response hearings, if needed, to be held later in the month. Responses to those findings are due in early July, and a final report is scheduled for late July. The statutory deadline for the case is August 11.
The CMA on December 23 opened a phase 2 investigation into the proposed purchase of the ground transportation systems business, which includes rail signaling, communication and fare-collection products. In August 2021, Hitachi announced its intention to acquire the business for 1.66 billion euros and at the time expected the transaction to close by the end of this month.
Google/Photomath EC review. Whether Google’s (GOOGL) latest encounter with the EC on a proposed merger will be smooth sailing or is headed for more complex challenges could become clearer this week. It’s not known if the commission has raised concerns about the search giant’s planned acquisition of Photomath, but if it has, Google has until midnight tomorrow to offer phase 1 concessions to the regulator. The commission’s phase 1 review deadline is March 28.
Photomath is a provider of online homework and study help tools. Google’s last regulatory foray in Brussels involved its $2.1 billion takeover of Fitbit in 2020. Following an in-depth probe, the EC cleared that deal, subject to numerous conditions designed to protect competition.
Food suppliers questioned by Austrian competition agency. The Federal Competition Authority (AFCA) said last week that it began questioning some suppliers to the country’s food retail industry as part of a sector inquiry the agency started in October. This latest step of the probe will aim to examine “proportionality and suppliers’ experience of negotiating with the food retail industry.”
“The online survey will be sent to more than 1,500 companies that supply the four largest Austrian food retailers in Austria and Germany and that exceeded a defined sales threshold for deliveries of food products (excluding alcoholic beverages) in 2021 or 2022,” the AFCA said.
