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Microsoft’s $69bn Activision deal blocked by the UK

The UK competition regulator, the Competition and Markets Authority (CMA) has blocked Microsoft’s $69bn acquisition of Activision Blizzard over concerns about the cloud gaming market. The CMA is worried over the possibility that Microsoft would make Activision’s games exclusive to its own cloud gaming service, which would discourage technology innovation and investment in the UK. If the deal went through, Microsoft, which accounts for about 60-70% of cloud gaming services, would gain control over games such as Call of Duty and World of Warcraft and become the third-biggest gaming company by revenue.

Microsoft’s president Brad Smith said the company remained completely committed to the acquisition and will appeal the ruling, while Activision said it would “work aggressively” with Microsoft to overturn the verdict. The maker of the hit game Call of Duty criticised the decision, calling it a “disservice to UK citizens” and saying that it contradicts the UK’s ambitions to become an attractive country for technology businesses. Microsoft has already signed contracts to make Activision Blizzard’s games available on 150 million more devices, Smith added. He considered that the CMA reflected “a flawed understanding of this market and the way the relevant cloud technology actually works.”

The CMA’s decision has a particularly significant impact on the process of the deal. To go through, it has to be approved by regulatory bodies in the UK, United States, and European, and the CMA is the first of the three to rule. The US Federal Trade Commission (FTC) is also seeking to block the deal. So far, European Commission officials have been more willing to make compromises to approve the acquisition and will make the final decision by 22 May.

Activision’s share price dropped by over 12% to $76.65 on April 26 after the news, moving further away from Microsoft’s offer price of $95 per share. If the losses hold, the video game publisher would lose about $8bn in market value. Conversely, Microsoft’s share soared more than 7% to $295.85 on the same date. Investors may have already factored the possibility of the block into their valuations and concern over Microsoft overpaying for the deal, explaining the share price movement. Most importantly, Microsoft reported positive earnings results the previous morning, which may have buoyed its share price despite the news of the blocked acquisition.

Written by: Quynh Chi (Camila) Le

Sources: Financial Times, Reuters, Yahoo!Finance

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