Microsoft’s bid to acquire Activision Blizzard has run into a brick wall, and places the $68 billion deal’s future essentially dead-on arrival.
Following a strong Q3 earnings report, Microsoft was set rack up another positive marker for the week as the UK’s Competition and Market Authority was on the eve of issuing its decision on the company’s acquisition of game publisher Activision Blizzard, unfortunately the ruling provided today was not in Redmond’s favor.
UK regulators have blocked Microsoft’s bid to acquire Activision Blizzard citing “reduced innovation and less choice for UK gamers,” as their reasoning to end a six-month long investigation into viability of the two companies merging.
After reviewing over 3 million documents, 2 thousand emails and communications, several surveys, public opinion polls, and meetings, the CMA issued the following statement regarding its conclusion.
We have concluded that the merger would result in the most powerful operator in the fast-developing market for cloud gaming, with a current market share of 60-70%, acquiring a portfolio of world-leading games with the incentive to withhold those games from competitors and substantially weaken competition in this important growing market.
The CMA acknowledges Microsoft’s efforts to placate the body’s concerns but ultimately found the company’s proposals significantly lacking and would not help to “restore the competitive dynamism that would be lost as a result of the merger.”
Despite inking several pending deals that would bring several of Activision Blizzard’s titles out of exclusivity and onto previously shunned platforms, the CMA still felt Microsoft would have “replaced competition with ineffective regulation in a new and dynamic market.”
Microsoft plans to appeal the decision as company vice chair and president Brad Smith issued the following statement,
We remain fully committed to this acquisition and will appeal. The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom. We have already signed contracts to make Activision Blizzard’s popular games available on 150 million more devices, and we remain committed to reinforcing these agreements through regulatory remedies. We’re especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.
Unfortunately, for Microsoft it may be too late to salvage the deal with TD Cowen merger arbitrage strategist Aaron Glick reporting to Bloomberg, “essentially, there has never been a successful appeal in the UK on an antitrust decision.”
As a result of the news, Activision’s shares have taken a 10% nose dive with investors seeing roughly $77.50 a share in premarket trading. Activision’s investors are now looking at a $17.50 gap between actual share value and the proposed value promised by Microsoft had the two companies managed to clear European regulatory hurdles.
Conversely, Microsoft stock is trading up almost 7%, with investors signaling a sigh of relief from what many believe the Activision deal to be a complicated and costly endeavor for the company.
It is unclear what becomes of Microsoft’s efforts to acquire Activision Blizzard at this point with yet the EU Commission and the FTC still waiting to publish their findings, but today’s hurdle may be big enough to end acquisition efforts.