In a surprising move, the UK competition regulator has reversed its position on Microsoft’s proposed $68.7 billion acquisition of Activision Blizzard, the maker of the popular Call of Duty franchise. After reviewing new evidence, the Competition and Markets Authority (CMA) stated that it no longer believes the acquisition would result in a “substantial lessening of competition” in the console market.
This U-turn by the CMA is a significant development for Microsoft, as it clears a major obstacle for the deal’s global prospects. Last month, the CMA had suggested that Microsoft would have to sell the Call of Duty business for the acquisition to proceed, a solution that the tech giant deemed unworkable.
The CMA’s change of heart is an unusual development and one that has surprised industry experts. “Restating your provisional findings is something you would rather die than do,” remarked a former CMA lawyer. The regulator’s move is a major boost for Microsoft, as it paves the way for the company to close the deal.
However, the acquisition still faces a hurdle in the form of the US Federal Trade Commission (FTC), which filed a lawsuit to block the deal in December. Meanwhile, the CMA is still investigating the transaction’s impact on competition in cloud gaming, a focus of a separate EU probe.
Activision Blizzard’s shares rose more than 5% in New York trading following the announcement, but they are still trading below Microsoft’s offer price of $95 per share. Activision CEO Bobby Kotick had warned that blocking the deal would cause the UK to miss out on a post-Brexit opportunity to attract thousands of jobs, and criticized the CMA for “not really using independent thought.”
In response to the CMA’s provisional findings, Microsoft argued that the assessment was flawed and undermined by financial modeling errors. The company claimed that there were “clear errors in the figures being used to value the small number of Sony customers who might move to Xbox in the absence of Call of Duty.”
The CMA’s latest findings suggest that any attempt by Microsoft to make Call of Duty exclusively available on Xbox would result in significant losses. Martin Coleman, chair of the independent panel conducting the CMA’s investigation, explained that provisional findings are meant to give the businesses involved and any interested third parties a chance to respond with new evidence before a final decision is made.
