Microsoft's $69B Activision Deal Faces Regulatory Hurdles

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Microsoft's $69B Activision Deal Faces Regulatory Hurdles

The UK's Competition and Markets Authority (CMA) has rejected Microsoft's $69 billion takeover bid for Activision Blizzard, a decision that surprised many who believed the deal would be approved. This development highlights the growing assertiveness of global regulators and presents an additional challenge for corporate buyers in the currently stagnant market for mergers and acquisitions.

The CMA's decision narrows the scope of its inquiry to cloud gaming, stating that allowing Microsoft to buy the Call of Duty maker could give the tech giant excessive power in the video games market. This move showcases the agency's growing regulatory muscle.

An appeal of the CMA's decision is unlikely to succeed, according to Pablo Ibáñez Colomo, a law professor at the London School of Economics. The tribunal that will evaluate Microsoft's appeal will primarily focus on whether the regulator followed the proper procedure. This gives the CMA a significant institutional advantage, positioning it as one of the world's most influential antitrust enforcers, alongside those in the United States and the European Union.

Global regulators are now reviewing deals more closely. In the US, this is due to an ideological shift against big companies becoming even larger. Political factors also play a role, such as Berlin's scrutiny of Carrier's $13.3 billion acquisition of German heat pump manufacturer Viessmann to ensure the country remains competitive in renewable energy technologies.

Deal makers argue that mergers and acquisitions are still possible if corporate buyers are willing to fight in court and prepared to see transactions fail. Just under 1 percent of announced deals have been withdrawn this year, slightly lower than last year's rate.

Microsoft announced on Wednesday that it would defend the Activision bid. However, with a July 18 deadline looming and shareholders seemingly unfazed by the legal setback, some analysts believe that the Xbox maker may ultimately accept defeat, pay the $3 billion breakup fee, and move on.

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Insight: We classify this news as having an Industry-wide Impact (Level 2). The decision by the CMA to reject Microsoft's bid to acquire Activision Blizzard has significant regulatory implications for the tech and gaming industries. It highlights the increased assertiveness of regulators around the world, which could affect future mergers and acquisitions in these sectors. The focus on cloud gaming also highlights the growing importance of this emerging sector in the market. However, we find that focusing on a small subset of the gaming market, emerging but still, is odd.

The block may also have significant regulatory implications for other mergers and acquisitions, signaling a more cautious approach by authorities when assessing deals in the tech industry.

If the deal is blocked, we believe that Microsoft long-term will focus less on Xbox and the gaming segment, leading to increased dominance from Sony (PlayStation). So the ruling would long-term lead to a less competitive environment for the gaming industry as a whole.