Microsoft and Activision Blizzard have agreed to extend their merger agreement pending the outcome of negotiations with UK regulators. Both parties will now have until October 18th to finalize the transaction, after missing yesterday’s original deal deadline.

“The recent decision in the US and approvals in 40 countries all validate that the deal is good for competition, players, and the future of gaming,” tweeted Lulu Cheng Meservey, Activision Blizzard’s CCO and EVP of corporate affairs. “Given global regulatory approvals and the companies’ confidence that CMA now recognizes there are remedies available to meet their concerns in the UK, the Activision Blizzard and Microsoft boards of directors have authorized the companies not to terminate the deal until after October 18.”

Microsoft vice chair and president Brad Smith says the three-month extension is designed “to provide ample time to work through the final regulatory issues.”

Both Microsoft and Activision Blizzard have also agreed to a higher termination fee and new commercial arrangements for the transaction. A termination fee, payable if Microsoft or Activision walks away from the deal, is now set at $3.5 billion if the deal doesn’t close by August 29th, and it jumps to $4.5 billion if September 15th passes without a finalization.

Activision has also agreed to potentially “hold separate the Company or certain assets of the Company or to implement other lawful alternatives to consummate the Merger” with UK regulators. This is a key part as it may allow the merger to go ahead

The delay is related to Microsoft’s ongoing negotiations with the Competition and Markets Authority (CMA). The UK regulator originally blocked the deal over cloud gaming concerns earlier this year. While Microsoft has appealed that decision, the company is also preparing to reportedly offer a new proposal to sell off its rights to cloud gaming in the UK to try and get the deal over the line.

The merger extension comes after a case management conference in the UK on Monday, where the Competition Appeal Tribunal (CAT) agreed to allow Microsoft and CMA to negotiate a way to close the deal and pause the appeal process. The CMA made it clear earlier this week that Microsoft had not yet submitted its final proposal, and the regulator now has until Thursday at midday to file all the relevant evidence to the CAT for the tribunal judges to officially put the pause of the appeal in place.

In the meantime, the CMA also said earlier this week that it will now issue a final order by August 29th. Microsoft had originally planned to close its Activision Blizzard deal by July 18th, but the complex situation in the UK has added some extra time to the process. While there is plenty of regulatory work to do in the UK to analyze a change to the transaction, Microsoft is extending its deal deadline date to avoid it falling through if Activision Blizzard decided to walk away or the unlikely scenario of another company attempting to offer better terms for an acquisition.

Developing…