UK's CMA to block Microsoft's $69bn takeover of Activision Blizzard

The competition watchdog said the deal would alter the future of the fast-growing cloud gaming market, "leading to reduced innovation and less choice for UK gamers over the years to come".

At 1245 BST, Activision shares were down 10% in pre-market trade at $78.02.

The CMA, which launched its in-depth probe into the deal last September, said it would "reinforce Microsoft’s advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft".

"The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future," it said.

Martin Coleman, chair of the independent panel of experts conducting the investigation, said: "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.

"Microsoft engaged constructively with us to try to address these issues and we are grateful for that, but their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market.

"Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job."

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "Microsoft’s long awaited strategic acquisition of game-maker Activision Blizzard has come under pressure from authorities once again. The CMA has concerns that the deal could undermine fair competition in cloud gaming if the Xbox maker decides to make Activision’s games exclusive to its cloud gaming platform. Cutting alternative distribution off at the knees is seen as a step too far for the UK authorities.

"Scepticism among shareholders about the proposed takeover was already rife, the CMA is not the only regulatory body to be sniffing around the deal. Microsoft has plenty of financial resource to appeal the decision, with over $50bn of net cash languishing on the balance sheet.

"There’s no guarantee that the CMA will bend on this one, but a compromise is possible. This could see Microsoft take on some areas of Activision and not others, but ultimately the final shape of the deal is hard to map. Microsoft needs this deal to help stoke growth in the wake of disappointing personal computer sales, with the gaming market a far more high-growth area, which would supplement the group’s leading AI position. Activision’s incredible haul of intellectual property is a big factor in this situation, but more broadly, as cloud gaming continues to grow and regulators learn as they go, tougher regulations and frustrating corporate outcomes are likely."