The Competition and Markets Authority’s decision, issued Wednesday, found Microsoft failed to satisfy that the proposed ventures would have adequately mitigated the regulator’s competition concerns since the deal was announced. The CMA has said the deal poses a competition threat to the UK gaming industry and has been reviewing it for months.
The decision in the UK has cast a long shadow over the deal around the world. The CMA investigation focused on the UK market. But legal experts say the decision could prevent the deal from closing, as the videogame industry is complex and global, and it would not be practical for a joint Microsoft-Activation deal to operate entirely outside the UK market.
The US Federal Trade Commission and European Union regulators are also scrutinizing the deal. The UK decision will have no direct impact on those other proceedings, but such global deals usually require the backing of the world’s biggest regulators to proceed.
While the UK has generally not been a significant factor in blocking deals in the past, its competition authority has become more active on the global stage since Britain’s departure from the EU.
Microsoft said it would appeal the decision and stand by the deal. Antitrust lawyers said appeals in Britain could move relatively quickly, but the threshold for overturning the CMA’s decision is high. The Appellate Tribunal only looks at whether a decision was legal and reasonable and whether due process was followed.
The UK regulator had signaled skepticism about the deal, but the rejection nonetheless stunned many investors. Microsoft stock rose 7% in premarket trading shortly after the CMA announcement, while shares of Activision fell more than 10%. Microsoft beat analysts’ expectations in its earnings report late Tuesday. Investors can also respond to expected cost savings from Microsoft walking away from the Activision deal.
The European Commission, the EU’s antitrust watchdog, has set a May 22 deadline for its own rule.
Meanwhile, the FTC, which sued Microsoft in December for blocking the deal, has scheduled a hearing of the case in its administrative court for August.
All three regulators raised concerns that the transaction could allow Microsoft to control how consumers access Activision games such as “Call of Duty,” potentially reducing competition in the global videogame industry. But in March, the CMA narrowed the focus of its investigation to the newborn. cloud-gaming market, allaying previous concerns that the deal could reduce competition in the established and much larger console-gaming market.
The CMA said in its ruling that the deal would transform the fast-growing cloud-gaming market and lead to less innovation and choice for UK gamers. It said Microsoft already has advantages in this space as it owns the computer operating system Windows and has a global cloud infrastructure as well as a robust gaming console and collection of games.
“No other cloud gaming operator has this combination of advantages, which partly explains Microsoft’s current UK market share of between 60-70%,” the CMA said.
The antitrust watchdog also said that an independent investigative group found that post-merger Microsoft would have an incentive to take away Activision’s games from competitors and that commitments Microsoft had made to prevent such behavior would be ineffective.
Furthermore, such a measure would require continued regulatory obligations to be overseen by the CMA. “Competitive forces are better positioned in a free market to compete and get the right results for consumers,” the CMA said.
The agency noted that other officials have raised similar concerns, citing the FTC’s December move to block the deal.
Regulators in other countries such as Brazil, Saudi Arabia and South Africa had previously approved the deal.
Brad Smith, Microsoft’s vice chairman and president, said the company remains fully committed to the acquisition. He said the decision would discourage technology innovation and investment in the UK and referred to what he called a practical way to address the agency’s competition concerns.
“We are particularly disappointed that this decision, after long deliberation, reflects a flawed understanding of this market and the way relevant cloud technologies actually work,” Mr Smith said.
Activision said the CMA’s decision contradicts the UK’s ambitions to be an attractive country to build technology businesses. “The report’s findings do a disservice to UK citizens, who face increasingly dire economic prospects,” the company said.
The decision is one of the highest profile for the CMA, which has long sat in the shadows of regulators in the EU. The agency has increasingly weighed in on large global deals since Britain left the bloc.
The UK ranks as the sixth largest market for consumer spending on videogame software, according to industry tracker Newzoo BV. China is the largest, followed by America
In a February appearance on CNBC, Activision chief executive Bobby Kotick said the UK would fall behind in tech innovation if it were to block Transactions and others. “If deals like this can’t happen, they won’t be Silicon Valley, they will be Death Valley,” he said.
Legal experts said although the CMA scrutinizes most deals, it has developed a reputation in recent years for taking a more heavy-handed approach than its peers.
In 2021, the CMA ordered Facebook parent Meta Platforms Inc to sell animated-image company Giphy because it said the acquisition could harm competition between social-media platforms and UK advertisers. The CMA in 2020 acquired travel-booking company Saber Corp’s rival Farelogix Inc. Also stopped the merger with.
In both the cases, the companies left the deals globally due to the CMA decision.
Before Wednesday’s ruling, opposition lawyers had said the CMA could become one of the biggest obstacles to the Microsoft deal. The UK agency generally prefers structural changes to address concerns. These may include asking companies to sell business units that are at the center of concerns about competition.
In February, the CMA suggested one such change—for Microsoft to divest the Activision unit that makes the hit “Call of Duty” franchise. But the software company said it was not an option it would be willing to consider.
In its ruling, the CMA stated that the behavioral commitments offered by Microsoft would apply only to a subset of videogames that are accessed through particular services and stores, thereby ending a disagreement between Microsoft and cloud-gaming service providers. the risk increases.
Antitrust lawyers said the scrutiny of the deal on both sides of the Atlantic is a sign of growing concern from global regulators about the dominance of big tech companies.
“For too long, competition authorities were criticized for being weak on mergers, especially in the digital space,” said Damien Geradin, a Brussels and London-based competition lawyer with Geradin Partners. The mood has changed.
Some experts say Microsoft could still complete the deal without UK approval if the appeal is passed. Blocking the UK from accessing Activision games is likely to reduce revenue and increase customer problems, said David Hoppe, mergers and acquisitions, technology and media attorney with Gamma Law in San Francisco.
“It is not uncommon for publishers to serve different versions of the same game in different countries, or to geofence certain games from certain countries,” he added. “This may be the result of license restrictions, local law or cultural concerns.”