“The UK is clearly closed for business”. Those were the damning words of a spokesperson for Activision Blizzard following the CMA’s decision to block the proposed takeover of the company by US tech giant Microsoft, announced on 26 April 2023.

The backstory? In January 2022, a deal was brokered between Microsoft and Activision Blizzard that would have seen the latter acquired for a staggering $69bn (£55bn). If the deal were to complete, Microsoft would break into the top 3 video game publishers in the world (with only Tencent and Sony ranking above them). It would also have seen Microsoft add a range of hugely successful titles to its games offering line-up, such as Diablo, Call of Duty, World of Warcraft and Candy Crush.

However, the deal caught the attention of various regulatory bodies worldwide, including the UK’s competition regulator the Competition and Markets Authority (CMA) and America’s antitrust equivalent the Federal Trade Commission (FTC).

Both the CMA and the FTC had the same concerns over the deal, that it would harm competition in the gaming industry. The FTC has responded by filing an antitrust lawsuit in an attempt to block the acquisition but given the length of time these types of matters can take to reach a conclusion in the US, it is not thought that a decision will be made in the near future. The CMA on the other hand has taken the early initiative and has chosen to block the deal in its entirety.

So, what were the major concerns? Well, the CMA’s concerns focused on an up and coming market within the games industry, known as “cloud gaming”. The concept of cloud gaming is simple, it allows you to stream games that you want to play directly to devices that you already own, without having to purchase additional hardware (for example an Xbox console). This would include phones, tablets and even smart TV’s.

The CMA reported that Microsoft already accounts for an estimated 60-70% of global cloud gaming services and given its position in the market (including owning gaming giant Xbox and Xbox Cloud Gaming and the leading PC operating system Windows) the CMA felt that allowing the deal to go through would have meant Microsoft acquired even more of a competitive advantage than it already has.

Some of the concerns were that Microsoft would find it particularly beneficial to make the titles it would acquire from Activision Blizzard (which are currently available on multiple platforms) exclusive to its own cloud gaming service offering. It was also said that allowing the takeover to complete would risk undermining the innovation crucial to the development of new technologies such as cloud gaming, particularly given that it was thought that Activision Blizzard themselves would start utilising cloud gaming technology in the near future.

In its defence, Microsoft put forward several proposals to try to address the concerns of the CMA, including ones that specified that they would keep the popular titles they would acquire as part of the deal available on other platforms for a period of 10 years. Unfortunately however, Microsoft’s proposals were not to the satisfaction of the CMA, who decided to block the takeover entirely in the hope that this would effectively allow market forces to continue to develop cloud gaming technology without further regulatory intervention.

The implications? Well firstly, the takeover itself might fall apart, particularly if the FTC were to follow suit and block the deal as the CMA has done. If that happens, it is likely that Microsoft would be required to pay a significant fee to Activision to get out of the deal.

Microsoft has signalled that it is likely to appeal the decision to the Competition Appeal Tribunal (CAT), but we have already seen from previous cases of a similar nature how high the bar is for overturning CMA decisions on mergers such as this. One such example was where Meta (the parent company of Facebook) was ordered to unwind the acquisition of online search tool Giphy after the CMA blocked the takeover. That decision was also appealed to the CAT, who had no hesitation in upholding the CMA’s decision.

Those with interests in the acquisition should keep a keen eye on developments over the coming months to see how the CMA’s decision impacts the potential takeover. Any appeal to the CAT could take many months to be dealt with, unless it is fast-tracked.

This is not legal advice; it is intended to provide information of general interest about current legal issues. You should specific legal advice before acting in reliance on any of the information provided.