In Fatal Blow, UK Regulator Blocks Microsoft's $75 Billion Takeover Of Activision
In a fatal blow to Microsoft’s $75 billion takeover of Call of Duty maker Activision Blizzard, not to mention countless M&A arbs, Britain’s antitrust watchdog vetoed the gaming industry’s biggest ever deal, saying it would harm competition in cloud gaming.
The powerful CMA, or Competition and Markets Authority, said its concerns couldn’t be solved by remedies such as the sale of blockbuster title Call of Duty or so-called behavioral remedies involving promises to permit rivals to offer the game on their platforms, according to a statement Wednesday.
Pressure had been mounting on Microsoft - which yesterday reported stellar earnings and solid guidance sending its stock sharply higher - as it lobbies at home and in Europe to convince watchdogs to clear the deal, one of the 30 biggest acquisitions of all time. Crucially, the CMA’s conclusions comes before decisions from the European Union and the US Federal Trade Commission, which is awaiting a hearing in the summer after formally suing to veto the transaction.
“Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors,” Martin Coleman, chair of the independent panel of experts conducting this investigation, said.
The CMA took a view that the merger could result in higher prices, fewer choices and less innovation for UK gamers.
We’ve prevented @Microsoft from purchasing @Activision over concerns the deal would damage competition in the #CloudGaming market, leading to less innovation and choice for UK #gamers. ☁️https://t.co/SdXt1rYAkZ pic.twitter.com/prWcDI7Evt
— Competition & Markets Authority (@CMAgovUK) April 26, 2023
However, earlier this month it narrowed its original scope to focus on cloud gaming rather than consoles, after weighing new evidence.
“We remain fully committed to this acquisition and will appeal,” Brad Smith, vice chair and president of Microsoft, said. “The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the UK.”
We remain fully committed to our acquisition with @ATVI_AB and will appeal today's determination by the CMA. Here's our statement. pic.twitter.com/ylvDP5RUqQ
— Brad Smith (@BradSmi) April 26, 2023
He added that the CMA’s decision reflected “a flawed understanding of this market and the way the relevant cloud technology actually works”.
The CMA said the deal would solidify Microsoft’s advantage in the market by by giving it control over blockbuster games Call of Duty, Overwatch, and World of Warcraft. The watchdog found that without the merger Activision would be able to start providing games on cloud platforms in the future.
“The CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology businesses,” an Activision spokesperson said.
“We will work aggressively with Microsoft to reverse this on appeal.”
The ruling also comes after the regulator retreated from a key concern in February, in step that had appeared to pave the way for the two sides to inch the deal through. The companies had hoped to reassure the CMA that licensing deals signed with cloud gaming platforms would be sufficient to clear the takeover.
In kneejerk response, Activision stock fell as much as 12% to $76 in premarket trading; the gap between Activision’s stock price and Microsoft’s $95-a- share offer widened to $19 in premarket trading, compared with $8.26 as of Tuesday’s close, leading to massive losses across an arb community which at one point included even Warren Buffett before his wise decision to offload ATVI stock in late 2022.
