UK watchdog blocks Microsoft’s $69 billion takeover of Activision Blizzard

The British government’s antitrust authorities have blocked Microsoft’s $69 billion acquisition of “Call of Duty” maker Activision Blizzard, claiming that the merger will negatively impact the competitive landscape in the gaming market.

The UK’s antitrust regulator said Microsoft’s commitment to offer access to Activision’s multi-billion dollar “Call of Duty” franchise to leading cloud gaming platforms would not effectively remedy its concerns.

The news caught many insiders by surprise, as the CME had narrowed the focus of its investigation earlier this month. As reported by The Post, Microsoft executives in recent weeks had become confident they were going to win UK support and had been planning to complete the merger despite opposition from the Federal Trade Commission.

Nevertheless, the CME said in its statement that “the deal would reinforce Microsoft’s advantage in the market by giving it control over important gaming content such as ‘Call of Duty,’ ‘Overwatch,’ and ‘World of Warcraft’.

“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, the head of an independent panel that was picked by the UK Competition and Markets Authority, said in a statement on Wednesday.

Activision Blizzard’s stock price sank by some 10% in pre-market trading in reaction to the news while shares of Microsoft were up by more than 7.5% before the opening bell on Wall Street on Wednesday after an impressive earnings report beat analysts’ estimates.

Microsoft said in a statement it remained fully committed to this acquisition and would appeal.

“The CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology businesses,” Activision Blizzard said in a statement. “We will work aggressively with Microsoft to reverse this on appeal.”

The company added: “The report’s conclusions are a disservice to UK citizens, who face increasingly dire economic prospects. Global innovators large and small will take note that – despite all its rhetoric – the UK is clearly closed for business.”

Bobby Kotick, the CEO of Activision Blizzard, wrote a memo to employees which read: “This isn’t the news we wanted — but it is far from the final word on this deal. Alongside Microsoft, we can and will contest this decision, and we’ve already begun the work to appeal to the UK Competition Appeals Tribunal.”

Wall Street analysts reacted to the news on Wednesday.

“We are surprised it would be cloud gaming considerations that would cause the UK to deny this deal,” Andrew Uerkwitz and Ed Alter wrote in a report for Jefferies Equity Research.

The analysts cited the “small size, slow adoption curve, and remaining technology hurdles that the cloud gaming market currently faces.”

Microsoft was feeling optimistic about winning the UK’s approval for the merger, particularly due to the sense that antitrust officials in Britain and Europe were showing signs of being swayed by the company’s pledges to give rivals such as Sony and Nintendo access to popular games including “Call of Duty.”

Microsoft, which owns the Xbox gaming console, had been working to win CMA approval by agreeing in recent weeks to give companies like Ubitus and Boosteroid access to Activision games on their cloud-based video game streaming services for 10 years.

It also signed a deal with Nintendo, which presently does not have access to “Call of Duty.”

Regulators were concerned that Microsoft would limit access to Activision’s games to subscribers of its “Game Pass” service, which would have put competitors at a disadvantage.

CMA said earlier this month it was only concerned about competition issues in the cloud and was no longer worried about Microsoft dominating the console market where it competes with Sony’s PlayStation.

The Windows software maker was banking on gaining final approval from UK antitrust officials as well as the European Commission this week, but Wednesday’s announcement from London has thrown a monkey wrench into those plans.

The FTC, led by antitrust hawk Lina Khan, filed a complaint on Dec. 8 seeking to stop the deal.