Microsoft’s $69 billion Activision takeover in doubt as UK regulator raises competition concerns

The British competition regulator says that Microsoft’s $69 billion acquisition of gaming giant Activision Blizzard could harm competition in the U.K. gaming market, and that it could move to block the deal.

The Competition and Markets Authority published a provisional decision on the deal on Wednesday, stating that the takeover raises competition concerns and may result in higher prices, fewer choices and less innovation.

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In a notice of possible remedies sent to both parties, the CMA said it may require Microsoft to:

• sell the business associated with its popular Call of Duty franchise
• divest the Activision segment of Activision Blizzard
• divest both Activision and Blizzard
• terminate the deal

Microsoft and Activision Blizzard have until Feb. 22 to respond. The CMA is set to issue a final decision on April 26. The regulator opened an in-depth probe into the deal on Sept. 1.

The CMA is concerned that the Activision deal could strengthen Microsoft’s position in the cloud gaming market, adding Call of Duty and other lucrative titles to its cloud-based Xbox Game Pass platform.

Cloud gaming, which allows gamers to play games over the internet on devices other than a console, is still in its infancy and not yet a mass-market technology.

The deal would also boost Microsoft’s console business, the CMA said, adding that Microsoft would find it “commercially beneficial” to make Activision games exclusive to its Xbox hardware or available on PlayStation “under materially worse conditions.”

This “could substantially reduce the competition between Xbox and PlayStation in the UK, in turn harming UK gamers,” the watchdog noted.

Activision Blizzard shares were down 2% on Wednesday following the CMA announcement. Microsoft shares, meanwhile, were trading 2% higher on the back of an announcement about the tech giant’s artificial intelligence advancements.

“We are committed to offering effective and easily enforceable solutions that address the CMA’s concerns,” said Rima Alaily, Microsoft corporate vice president and deputy general counsel, in an emailed statement to CNBC.

Microsoft has made commitments to Sony and Nintendo to continue releasing its new Call of Duty games on their respective PlayStation and Switch gaming platforms for 10 years.

An Activision Blizzard spokesperson said the company hopes to “help the CMA better understand our industry to ensure they can achieve their stated mandate to promote an environment where people can be confident they are getting great choices and fair deals.”

Activision Blizzard CEO Bobby Kotick also sent an internal memo to employees Wednesday, saying that the company was “confident that the law – and the facts – are on our side.”

“In this case, our combined companies will bring more competition to an already crowded field of world-class gaming competitors, including Sony, Tencent, NetEase, Apple, Amazon, and Facebook,” Kotick added. “We believe this merger gives us additional resources to compete with such giants.”

The Microsoft-Activision deal also faces scrutiny in the U.S. and European Union.

Stateside, the Federal Trade Commission is seeking to block the purchase on competition grounds, while the European Commission also has a competition investigation into the transaction. The commission, which is the executive arm of the EU, recently filed a charge sheet known as a statement of objections setting forth its concerns about the deal, according to Reuters.