This has been my thinking for a couple weeks now. That ABK's major shareholders have renewed confidence in the company's ability to raise its share price back into the 90 to 100 dollar range it was at before all their legal troubles. The company is in a very different position now than it was 18 months ago. Even before the deal was announced, their stock price was stabilizing. After the CMA blocked the deal, the share price only dropped by $10, still well higher than they were pre-deal announcement, and then went up again.
I also think Kottick is planning a series of investments and acquisitions with the $12 billion the company currently has. The plan may well be to let the deal die and focus on growing Activision further. He already mentioned a while back that annual Call of Duty releases may no longer be their path forward, as there were indications that the franchise's growth trajectory was shrinking. Activision itself may need some fresh, big IP to shore up a possible future where Call of Duty can no longer single-handedly bring in the money the Activision portion of the company wants. It may also be in their interest to expand if they do indeed plan on bringing games to Nintendo.
If negotiations have happened and a deal wasn't reached, it's likely, as you said, that their shareholders demanded a price well in excess of what Microsoft is willing to spend. Which also would include a larger failure fee than the current $3 billion. An outcome that is a very real possibility considering the difficulty in overturning a CMA decision. Especially over an acquisition. Certainly one of such magnitude that could have significant consequences.
Though, of course, I say this and within 5 minutes breaking news will happen that an extension agreement was reached.