LONDON, April 26 (Reuters) – Britain will block the (MSFT.O) $69 billion acquisition of “Call of Duty” maker Activision Blizzard (ATVI.O) over concerns that it would hamper competition in cloud gaming, dealing an unexpected blow to the largest-ever deal in gaming.
The country’s antitrust regulator said Wednesday that Microsoft’s commitment to offer access to Activision’s multibillion-dollar “Call of Duty” franchise to major cloud gaming platforms would not effectively address its concerns.
Microsoft Chairman Brad Smith said in a statement that the company remained fully committed to the acquisition and would appeal the decision, while Activision said it would “aggressively work” with Microsoft to reverse it.
Activision CEO Bobby Kotick told staff it wasn’t “the news we wanted, but it’s far from the last word on this deal.”
“We will reassess our growth plans for the UK,” the company said in a separate statement. “Global innovators big and small will take note that for all their rhetoric, the UK is clearly closed for business.”
Shares of Activision, which also makes “Candy Crush,” “Overwatch” and “World of Warcraft,” fell nearly 12% to $76.65, beating Microsoft’s offer price of $95 per share. The video game publisher was set to wipe out nearly $8 billion in market valuation, if the losses hold up.
The gaming company also reported quarterly results on Wednesday, a day ahead of schedule, beating quarterly booking estimates, though that appeared to do little to allay investor concerns about Britain’s move.
Microsoft shares rose to their highest level in more than a year, a day after the maker of Office software topped street estimates for quarterly income and earnings.
The company announced its offer from Activision in January 2022 to increase its firepower in a video game market led by Tencent. (0700.HK) and sony (6758.T).
“We expect Microsoft to continue to fight this,” Evercore ISI analyst Kirk Materne said in a note.
If Microsoft throws in the towel, it would free up more than $60 billion in cash flow to return to investors or invest in AI-related offerings, he noted.
The Activision deal is the largest involving tech companies that the Competition and Markets Authority (CMA) has blocked, the latest sign the UK watchdog is ready to take on Big Tech after blocking in 2021. the acquisition of Giphy by Facebook owner Meta.
Europe will decide on the Activision deal before May 22. The US Federal Trade Commission is also trying to block it.
CLOUD CONCERNS
The surprise ruling comes after the CMA last month set aside concerns about the deal’s impact on the console market led by Sony’s market leader PlayStation.
That left cloud streaming services as the remaining hurdle, which Microsoft tried to overcome by signing licensing agreements with streaming platform owners, including Valve Corp, Nvidia (NVDA.O) and boosteroid.
It had already offered Sony, a vocal opponent of the deal, a 10-year “Call of Duty” license, in line with a deal to bring the multibillion-dollar franchise to Nintendo’s Switch.
The CMA said the cloud gaming market is forecast to be worth 11 billion pounds ($13.7 billion) globally by 2026.
“Cloud gaming is growing rapidly with the potential to change gaming… freeing people from the need to rely on expensive gaming consoles and PCs and giving them more choice about how and where to play,” said the president of the CMA panel, Martin Coleman.
“This means that it is vital that we protect competition in this exciting and emerging market.”
Microsoft offers Xbox Game Pass, a subscription service for users of its Xbox console, and PC Game Pass for PC users.
The CMA said Microsoft had 60-70% of global cloud gaming services, as well as competitive advantages, including ownership of Xbox, the Windows PC operating system and cloud provider Azure.
($1 = 0.8019 pounds)
Reporting by Paul Sandle; Edited by Kate Holton
Our standards: The Thomson Reuters Trust Principles.
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