So they don't get to shoot and lose their activation?

Given what dptdexys quoted, the rules are clearly saying to resolve the shooting immediately. Waiting for other overwatch to finish, or for the target formation to break and withdraw is not immediately.

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They also say to resolve it as "normal shooting". Resolving three formations shooting at once, with the same modifiers isn't "as normal". Not knowing the intent of the writers, it's hard to conclusively favor either position. However, there's no precedent for combined shooting, which leads me to favor declaring at once and resolving each attack separately.

I agree the rules don't cover multiple formations on overwatch but I don't see how that gets us to the rules tell us to resolve them individually.

Following normal shooting states make all attack rolls then allocate and make saves, doing each formation individually does not follow that in my view and sets up cheesy situations.
Remember that when using overwatch shots you are not taking an activation, the formation has already activated and the shooting part is interrupting an opponents activation.
If a Tournament Organiser said play it that way or if everyone agreed to play it that way I would with no problem but I'd try to take advantage of any situation that came up just to prove a point.

What troubles me about allocating hits all together is that it seems you should only suffer 1 BM for doing it like that. Yes yoi will always have to take the cover modifier, but it also allows you to allocate further back in the formation. Another oddity is that you would have to fire similar weapons from different formations at the same target type (eg missile launchers all AP).

It does seem more natural to me to resolve hits for each formation separately, but the rules are certainly not clear. "Choose to shoot immediately" can mean "choose immediately", and that is how I read it, rather than "shoot immediately (all together)". It could mean either though.

There is even a third interpretation: all declare together, then resolve each formation's attacks one after the other, then check for broken, then resume the action.

To be honest I don't think the rules are any help here, people just have to choose the option that makes most sense to them. Hence like Dave I'd be happy to play it however the TO ruled it.

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"Resolve the shooting attacks using the normal rules." The normal rules have a Formation resolving it's attacks. The only other time multiple units can make shooting attacks in one activation is Co-Ordinated Shooting, and there it's also on a formation by formation basis. There's absolutely nothing in the rulebook or errata telling us to resolve them as one, or resolving them separately.

I have a habit when playing games to not deviate from the written rules as much as possible. Requiring overwatch shooting to be declared, then resolving each formation's shooting in turn("Resolve the shooting attacks using the normal rules.") sticks to the letter of the rules, and creates less ad hoc ruling. For example, resolving the attacks combined, while assessing blast markers for each firing formation is yet another deviation from "Resolve the shooting attacks using the normal rules." I understand the logic, but I also think that when you create new rulings on your own, it creates the potential for problems and misunderstanding.

Resolving each formation's shooting in total before moving to the next one follows the idea of "least disturbance", which is that when we must deviate from the rules, we should choose the least deviation. However, that's my opinion.

Best to leave the Tau Coordinated Fire special rule out of this discussion as it doesn't allow for combined shooting (I know you know this Verjigorm as you stated this - "and there it's also on a formation by formation basis"):
I understand where you're coming from there but it's a completely different situation.

The easiest comparison I can think of is a war engine shooting with several different weapons (I know we all know the WE rules - I'm just writing it here for clarity). Whilst it is a single unit, it's weapons are separate (each with own stats). When shooting, they must all target the same formation. This is achieved by rolling all attack dice first and then defender assigning casualties (as per the attackers stated intentions - WE/in or out of cover etc) and rolling armour saves. If the first weapon resolved managed to kill the AV's that some infantry was using for cover, that wouldn't suddenly remove the -1 to hit modifier on the infantry as the dice would already have been rolled.
This is right as it avoids cheesy situations.

It's true that the rules do not cover multiple Overwatches taken at the same time. I always had a nagging thought that it was only ever intended for one formation to be able to use Overwatch at a time. There is nothing to back this up in the rules though.

In the absence of clear rules, my inclination would be to agree with Dave and dptdexys.

Even then it's no clear situation:

Which direction should casualties be taken from (if Overwatchers are firing from different directions).
Crossfire might be available from one Overwatching formation and not another.

Maybe it is intended to allow only one Overwatch per enemy activation. It certainly would simplify the situation!

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The closest thing I can think of is a Space Craft with Drop Pods.

Spacecraft comes in and drops a barrage (blast markers on each formation coming under fire) and then drop pods planetfall with Deathwind (again, blast markers for each formation coming under fire). After all that is resolved you check to see if the formation(s) break, and then the next activation starts.

The differences with overwatch is it's not an activation, just something that happens in reaction to an enemy movement.

In any case, a formation declaring overwatch and then not getting to use it is more broken than a formation suffering a whole bunch of overwatch because it didn't get to run away immediately upon becoming broken.

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While I agree that the Drop Pod analogy is probably closest, I am not sure I agree with the conclusions here.
When playing Drop Pods, the Pods are all positioned on the table (after scattering etc) and then the effects of each Drop Pod are checked in turn. In past threads it has been argued that enemy formations check their status after each Drop Pod has been resolved.

Here, I suggest that the same approach is also adopted; that OW is activated for several formations, but that then each OW is resolved in turn, checking the status of the target formation after each. Doing otherwise seems to me to be as 'gamey' as waiting for the results of the first OW before declaring the next. Added to which, this follows the usual processes, rather than making slight revisions for this or that 'special' case.

That said, being able to activate multiple OW against the same formation is fairly rare, especially against the better players.