Game over for Microsoft’s £60bn takeover of Call of Duty maker Activision

UK regulators have blocked Microsoft’s proposed £60 billion acquisition of video game maker Activision Blizzard, putting the deal on the verge of collapse.

In a dramatic intervention, the Competition and Markets Authority (CMA) said the merger would encourage Microsoft to increase the cost of its gaming subscription service and could lead to “less innovation and less choice for UK gamers in years to come”.

It was particularly concerned about cloud gaming – the ability to stream games over the internet.

The decision, which could see the deal fail despite plans to appeal, drew swift and sharp condemnation from Activision, whose blockbuster video games include Call of Duty and World of Warcraft.

The US gambling giant said the ruling “contradicts the UK’s ambitions to become an attractive country in which to build tech companies” and labeled it a “disservice to UK citizens, who face increasingly deteriorating economic conditions.” prospects’.

Activision said: “Global innovators big and small will take note that, for all its rhetoric, the UK is clearly closed for business.”

Company boss Bobby Kotick insisted the decision was “far from the last word,” and suggested it could appeal the decision.

Microsoft was similarly furious. “The decision rejects a pragmatic path to addressing competition concerns and discourages technology innovation and investment in the UK,” said President Brad Smith.

“We are particularly disappointed that after much deliberation, this appears to reflect a lack of understanding of this market and the way the relevant cloud technology works.”

Smith also said it was “fully committed to this acquisition and will appeal.” Shares in Activision plummeted 11.5 percent on Wall Street following the ruling, while Microsoft rose 7.2 percent.

“Whether the CMA’s decision will cause the whole deal to fall apart is up for debate, but the parties’ advisers will no doubt be thinking very hard about how to salvage the deal,” said Alex Haffner, competition partner at the British law firm Fladgate. .

The CMA said Microsoft has not addressed concerns about the cloud gaming market and that the potential benefits to some customers “are outweighed by the overall harm to competition” resulting from the merger.

“Microsoft already has a strong position and competitive edge in cloud gaming and this deal would reinforce that advantage, allowing it to undercut new and innovative competitors,” said Martin Coleman, chair of an independent panel of experts that examined the merger. .

Company boss Bobby Kotick insisted the decision was “far from the last word.”

“Cloud gaming needs a free, competitive market to drive innovation and choice. The best way to do that is to let the current competitive dynamics do their job.’

The CMA’s move is a major blow to the merger, with decisions also to be made by regulators in the EU and the US, where the Federal Trade Commission is suing to block the deal.

One party likely to be celebrating is Japanese technology giant Sony, whose Playstation consoles are Microsoft’s Xbox’s main rival and would lose the most if the deal were approved. It called on regulators to block the merger.

The ruling seemed to blind analysts, many of whom thought the CMA would let it pass, subject to conditions.

“The CMA basically rewards PlayStation and Sony for maintaining the status quo of expensive console and full-price games,” said Gareth Sutcliffe of Enders Analysis.

He said Microsoft is being “punished for mishandling regulators’ concerns” and now needs a new plan to achieve a merger.

Rejection could jeopardize the position of Phil Spencer, the head of Microsoft’s gaming division, who was the main driving force alongside Smith in efforts to gain regulatory approval, he said. It’s hard to imagine how Spencer could stay if this failed. He was a big part of the problem.’

The CMA’s decision is another blow to Activision, which this year agreed a £28 million settlement with US regulators over claims it breached US whistleblower protection rules and failed to maintain adequate controls over workplace misconduct following sexual harassment allegations made in 2021 came to light.