UK regulators have blocked the proposed £60billion takeover of video game maker Activision Blizzard by Microsoft in a move that leaves the deal on the brink of collapse.
In a dramatic intervention, the Competition and Markets Authority (CMA) said the merger would encourage Microsoft to raise the cost of its gaming subscription service and could mean ‘reduced innovation and less choice for UK gamers over the 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 collapse despite plans to appeal, drew swift and stinging condemnation from Activision, whose blockbuster video games include Call of Duty and World of Warcraft.
Shit down: UK regulators have blocked the proposed £60bn takeover of Activision, whose blockbuster video games include Call of Duty (pictured) and World of Warcraft
The US gaming giant said the ruling ‘contradicts the ambitions of the UK to become an attractive country to build technology businesses’ and branded it a ‘disservice to UK citizens, who face increasingly dire economic prospects’.
Activision said: ‘Global innovators large and small will take note that, despite all its rhetoric, the UK is clearly closed for business.’
Company boss Bobby Kotick insisted the decision was ‘far from the final word’, suggesting it could appeal against the decision.
Microsoft was similarly enraged. ‘The decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the UK,’ said president Brad Smith.
‘We’re especially disappointed that after lengthy deliberations, this appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.’
Smith also said it was ‘fully committed to this acquisition and will appeal’. Shares in Activision tumbled 11.5 per cent on Wall Street following the ruling, while Microsoft rose 7.2 per cent.
‘Whether the CMA’s decision causes the entire deal to fall apart must be open to question, but no doubt the parties’ advisers will be thinking very carefully about how they might salvage it,’ said Alex Haffner, competition partner at the UK law firm Fladgate.
The CMA said Microsoft failed to address concerns around the cloud gaming market and that the potential benefits for some customers ‘would not outweigh the overall harm to competition’ caused by the merger.
‘Microsoft already enjoys a powerful position and headstart over competitors in cloud gaming and this deal would strengthen that advantage, giving it the ability to undermine new and innovative competitors,’ said Martin Coleman, chairman of an independent panel of experts that investigated the merger.
Company boss Bobby Kotick insisted the decision was ‘far from the final word’
‘Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics to continue to do their job.’
The CMA move is a major blow to the merger, with decisions also due to be handed down by regulators in the EU and US, where the Federal Trade Commission is suing to the block the deal.
One party likely to be celebrating is Japanese tech giant Sony, whose Playstation consoles are the main rival to Microsoft’s Xbox and stood to lose most if the deal was approved. It called on regulators to block the merger.
The ruling appeared to blindside analysts, many of whom thought the CMA would wave it through, with conditions.
‘The CMA is effectively rewarding PlayStation and Sony who wants to maintain the status quo of expensive console and full price games,’ said Gareth Sutcliffe, at Enders Analysis.
He said Microsoft was being ‘punished for its poor handling of regulator concerns’ and would now need to a new plan to achieve a merger.
Rejection could imperil the position of Phil Spencer, the head of Microsoft’s gaming division who, alongside Smith, was the main driving force behind efforts to get regulatory approval, he said. ‘It’s hard to see how Spencer could stay if this fails. He was a big part of the problem.’
The CMA decision is another blow for Activision, which this year agreed a £28million settlement with US regulators over claims it violated US whistleblower protection rules and failed to maintain adequate workplace misconduct controls following sexual harassment allegations that emerged in 2021.
