Microsoft's revised offer to acquire Call of Duty developer Activision Blizzard "opens the door" for the transaction to be approved according to sources.
The Competition Markets Authority (CMA) stated that the revised agreement appeared to address its concerns.
Under the new proposals, Microsoft will not acquire Activision Blizzard's cloud gaming rights. Its initial $69 billion (£59 billion) transaction was thwarted by UK regulators.
The CMA prevented Microsoft from acquiring all of Activision earlier this year out of concern that the acquisition would damage cloud gaming competition in the UK.
The following month, Microsoft submitted a restructured agreement to the competition watchdog for review.
Microsoft has agreed to transmit for 15 years the rights to stream Activision games from the cloud to the French video game publisher Ubisoft.
The sale of this portion of Activision's business to Ubisoft will prevent Microsoft from controlling the cloud transmission of games such as Call of Duty, Overwatch, and World of Warcraft.
Sarah Cardell, the chief executive of the CMA, said in a statement released on Friday, "The CMA's position has been consistent throughout - this merger could only proceed if competition, innovation, and consumer choice in cloud gaming are preserved." Before a definitive decision is made about the deal, a consultation will be held.
This latest update is likely to be a huge relief for the Microsoft and Activision executives who pushed hard and risked their reputations to get this transaction approved.
Microsoft's intention to acquire Activision Blizzard, the largest acquisition in the annals of the gaming industry, was announced in January of last year. However, it has proved controversial and received a divided response from regulators around the world.
European Union regulators approved the transaction in May, while a US competition watchdog's attempt to halt the acquisition was recently rejected by an appeals court.
Given that the acquisition appeared likely to fail earlier this year, the fact that it is now on the verge of approval is a significant accomplishment. However, in its most recent announcement, the CMA's Ms. Cardell stated that it would have been far preferable if Microsoft had proposed this restructure during their initial investigation.
Sony initially opposed the agreement out of concern that Microsoft could prevent major games from being made available for PlayStation.
The CMA stated that gamers would be able to access Activision's games in a variety of ways, including through cloud-based multigame subscription services, if additional protections were added.
The agreement concludes the first "test case" for the CMA - and how competition regulations operate in the United Kingdom - since it acquired additional powers following Brexit.
Microsoft continues to believe that the merger will increase demand for its Xbox console and gaming subscription business. Vice chairman and president Brad Smith stated that the company was "encouraged" by this positive development.
We have presented solutions that we think fully address the CMA's remaining concerns regarding cloud game streaming, and we will continue to work toward gaining approval to close by the 18 October deadline.
Microsoft expects the CMA to make a definitive decision on the revised bid the following month, after the consultation period concludes on October 6. Without its consent, the global transaction cannot proceed.
Enders Analysis's principal games analyst, Gareth Sutcliffe, noted Microsoft will acquire the mobile-only studio of Activision.
