Activision Blizzard (ATVI) shares plunged lower Wednesday after competition authorities in the United Kingdom blocked the 'call of Duty' video game maker's $69 billion takeover by Microsoft (MSFT).
Britain's Competition and Markets Authority (CMA) said the deal, which was unveiled early last year, would "alter the future of the fast-growing cloud gaming market" and stunt innovation and limit choice for gamers over the coming years. The watchdog added the Microsoft's proposed remedies would require enhanced overnight.
"Gaming is the UK's largest entertainment sector. Cloud gaming is growing fast with the potential to change gaming by altering the way games are played, freeing people from the need to rely on expensive consoles and gaming PCs and giving them more choice over how and where they play games," said the CMA chairman Martin Coleman. "This means that it is vital that we protect competition in this emerging and exciting market."
"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," Coleman added.
Activision shares were marked 9.55% lower in early trading immediately following news of the CMA decision to indicate to change hands at $78.54 each. Microsoft shares were up 6.3% at $292.76 each following last night's better-than-expected third quarter earnings.
"The CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology businesses,' Activision said in a statement emailed to TheStreet. "We will work aggressively with Microsoft to reverse this on appeal."
"The report’s conclusions are a disservice to UK citizens, who face increasingly dire economic prospects," the statement added. "We will reassess our growth plans for the UK. Global innovators large and small will take note that - despite all its rhetoric - the UK is clearly closed for business."
The CMA decision likely adds further support to the U.S. Federal Communications Commission challenge to the deal, which it has aruged would "harm competition in high-performance gaming consoles" by denying or degrading access to its gaming content by rival console makers.
The FTC cited Microsoft's 2021 takeover of ZeniMax Media, the parent company of game developer Bethesda Softworks, and the group's decision to make its 'Starfield' and 'Redfall' games exclusive to its XBox console.
European regulators are due to rule on the takeover next month.
The all-cash offer, which values Activision at $95 per share, gives Microsoft access to 30 internal game development studios, as well as e-sports publishing capabilities, when the deal closes later this year, while helping build-out its XBox console offerings.
“We remain fully committed to this acquisition and will appeal,” said Microsoft vice chair Brad Smith. “The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the UK.”
