Microsoft has been furious at the UK Competition regulator for blocking its $75bn acquisition by Activision Blizzard. The video games company called Britain “clearly shut for business” in a response.
The Competition and Markets Authority delivered a potentially fatal knock to Microsoft’s largest deal on Wednesday by concluding that the software giant can make Activision exclusive to its cloud gaming service.
Activision, the maker of Call of Duty said that the ruling was “incongruent with the ambitions of UK to be an attractive country for building technology businesses”. The company said the ruling was a “disservice” to UK citizens who are facing increasingly grim economic prospects. They added that “the UK has clearly closed its doors for business”.
In an email sent to employees on Tuesday, Activision CEO Bobby Kotick promised to fight for the completion of the deal. He also said that the CMA’s decision was not the last word.
Brad Smith, Microsoft’s vice-chairman and president, stated that his group is “fully committed to this purchase and will appeal”, and warned that the decision would “discourage technology innovation and investment” in the United Kingdom.
Activision shares dropped 11 percent on Wednesday after the news. The company released quarterly earnings in advance to show that its sales were strong at the end 2022 and had continued into the first month of 2019.
Activision’s first-quarter revenue increased by 35 percent to $2.38bn, and pro-forma earnings rose 70 percent to $1.09. Analysts expected revenue of $1.8bn, and pro-forma earnings of 52 cents per share.
Microsoft will become the third largest gaming company in terms of revenue if the deal goes through. It would be behind China’s Tencent, and Japan’s Sony. Microsoft may have to pay up to $3bn in break fees if the deal falls through.
Smith said that the CMA decision was a “flawed understanding of the market and how the cloud technology actually functions”.
The decision is a major blow to the global prospects of the deal and comes before regulatory decisions in EU and US. Last year, the Federal Trade Commission sued to block the deal.
This comes only a month after CMA withdrew from a major concern in an apparent attempt to increase the likelihood of the deal closing.
The companies hoped that the CMA would be satisfied with the licensing agreements signed with cloud gaming platforms. Microsoft proposed a solution which outlined what games would be offered to what platforms, and under what conditions, over a period of 10 years.
In a Wednesday update, the regulator stated that the solution had “significant flaws” due to the rapid-moving nature the cloud gaming industry.
The CMA stated that Microsoft, which is responsible for 60-70 per cent of cloud gaming, would be able to control games like Call of Duty Overwatch, and World of Warcraft.
Activision, however, has denied that it would have begun providing games to cloud gaming services even without the Microsoft merger. The developer was previously reluctant to license their franchises to subscription-based services and told UK regulators that it was skeptical of the market.
Microsoft made licensing agreements with streaming services such as Nvidia GeForce Now and Boosteroid. It also promised to bring call of duty on Nintendo’s Switch in an effort to prove that Activision’s ownership would increase the availability of its games rather than limit them.
Activision shareholder says that Microsoft will “surely fight every way possible, but this deal has already died.” This deal is a dead one.
The FTC, who filed to block this deal in December , said that Microsoft could dominate the cloud gaming market if it owned Activision games.
Next month, regulators in Brussels are expected to make a decision. Officials from the European Commission have so far been more willing than others to make concessions in order to close a deal.
In a statement released jointly by CMA chief executive Sarah Cardell, and Marcus Bokkerink, the CMA chair, they said: “The UK system of merger controls ensures the vast majority can proceed while requiring the CMA step in to stop the handful of problematic transactions that we identify. Our approach is proportionate.”
The CMA raised preliminary concerns about both the cloud gaming and console market. Sony, PlayStation’s owner and the leader in the console market, has repeatedly warned that it would suffer if Microsoft restricted the availability of one the most popular titles.
The regulator has changed its mind on the threat to the console market since Microsoft pointed out what it called errors in the CMA financial modelling. The CMA’s amended provisional findings from last month said that it did not believe Microsoft had any financial incentive to prevent console rivals from accessing Call of Duty which, over the course of its life, has generated more than $30bn of revenue for Activision.