I've been petty enough to cut off quite big deals in my life, I wouldn't expect the moral outrage company that Microsoft harbors to not do something similar. As we know, MSFT did remove Twitter from their ad network due to API pricing changes, price of business is cheap compared to the benefits they got there, so that's quite a ridiculous cut of spending to say the least.

Then again, we know they operate in countries fundamentally opposed to their "corporate values". So who knows.

I personally don't see how it can happen but of course I'm not a corporate lawyer. The parent companies merge so they might keep up some local branch to support the UK market, but how would that be connected to the parent company? What level of separation is needed, in the UK's eyes? Will the UK Activision branch workers allowed to work with Microsoft US? Or would that be seen as evading the ruling?

Well it depends on how Microsoft's accountants manage the maths:

Hypothetically, if MS + Activision - UK > MS + UK - Activision (assuming it's only blocked in UK), it's plausible that Microsoft withdraws from UK to pursue its business with the merger everywhere else. The UK is a decent sized market, but it's far from the biggest.