Britain Disrupts Microsoft's $69 Billion Activision Acquisition

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The largest-ever gaming transaction suffered an unexpected setback when Britain decided to veto Microsoft’s $69 billion acquisition of “Call of Duty” creator Activision Blizzard over concerns that it will stifle competition in cloud gaming.

The decision is a significant setback for the American IT giant, which intends to appeal and convince authorities that the merger will increase competition.

A Big Blow to Microsoft’s Ambition

Britain’s top competition watchdog recently took action to prevent Microsoft from purchasing video game maker Activision Blizzard.

According to the UK Competition and Markets Authority (CMA), the purchase raises concerns about competition in the emerging cloud gaming market, which is why it is opposed.

The CMA had previously expressed worries about the demise of competition in video game consoles, but this fear was dispelled in a preliminary ruling issued in March.

The regulatory body claimed that by handing over control of the Call of Duty, Overwatch, and World of Warcraft franchises to Microsoft, the agreement would strengthen the firm’s competitive position.

CMA also discovered that even without the merger, Activision could begin offering games on cloud platforms in the future.

According to Bloomberg, Activision CEO Bobby Kotick told his team that, while the news was not what they had hoped for, the agreement is still alive.

The company also stated that it would reconsider its UK expansion plans. It insisted that large and small global entrepreneurs note that, despite its rhetoric, the UK is completely closed for business.

Microsoft has been under increasing pressure as it campaigns domestically and internationally to convince regulatory bodies to approve the merger.

Importantly, the CMA’s findings come before judgments from the European Union and the US Federal Trade Commission, which has scheduled a hearing into the deal in the summer after filing a formal lawsuit to block the sale.

Activision stated that it would work with Microsoft aggressively to overturn the ruling.

Microsoft’s president, Brad Smith, also said the company was fully committed to the acquisition and would appeal the verdict.

Advantages Over Competitors

Microsoft announced its $69 billion Activision proposal in January 2022 to increase its firepower in a video game market dominated by Tencent and Sony.

Some Microsoft rivals were opposed to the deal, fearing it would give the firm a stranglehold on the $200 billion video game industry.

The possibility that Microsoft would restrict distribution access to Activision’s well-known Call of Duty franchise on certain platforms was especially concerning.

Particularly, Sony has expressed worry about Microsoft’s acquisition of Activision. The Japanese gaming company is concerned that Microsoft may eventually restrict Call of Duty to its Xbox gaming systems.

However, while battling regulatory struggles in the UK and Europe, Microsoft had been waging a visually appealing road show of press conferences in Brussels and full-page ads in British newspapers to sway public opinion on the acquisition.

According to Martin Coleman, the chair of the independent panel of experts conducting this investigation, Microsoft already has a significant competitive advantage over its competitors in cloud gaming.

Microsoft’s advantage will only grow if the deal progresses, giving it more leverage to hinder new and creative competitors.

However, the tech giant argues that withholding Call of Duty from PlayStation, Nintendo, and other competitors would be financially inefficient due to the license revenue generated by keeping the game available on their platforms.

Microsoft also offered 10-year contracts to Sony, Nintendo, Nvidia, and other companies to continue providing Call of Duty on their game platforms to calm such worries.

Microsoft has entered into a 10-year commitment to bring Call of Duty to @Nintendo following the merger of Microsoft and Activision Blizzard King.  Microsoft is committed to helping bring more games to more people – however they choose to play. @ATVI_AB

— Phil Spencer (@XboxP3) December 7, 2022

Activision’s shares fell more than 10% in pre-market trading recently, while Microsoft’s shares increased 7.4% after releasing its better-than-expected quarterly results on Tuesday.

However, if the transaction is rejected, Microsoft may be liable for a $3 billion breakup fee.