Activision tumbles as UK blocks Microsoft deal on competition concerns
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Activision (NASDAQ:ATVI) shares plunged nearly 10% in pre-market trading on Wednesday after the U.K.'s regulator blocked Microsoft's (NASDAQ:MSFT) proposed deal to buy the video game publisher for almost $69B, citing concerns about cloud gaming.
In a statement, the Competition and Markets Authority said that Microsoft (MSFT) already has "strong advantages" in cloud gaming, as it owns Windows, it has the Azure cloud platform and Xcloud, along with its Xbox gaming base, bringing its market share of cloud gaming to be between 60% and 70%.
"We have therefore concluded that combining Activisionâs strong portfolio of games with Microsoftâs current multiple cloud gaming strengths would enable Microsoft to harm current and emerging cloud gaming competitors by withholding Activision games from them and, unlike in the case of consoles, we have not found that there are any material reasons to stop it doing this," the CMA wrote in its decision.
Microsoft's (MSFT) Vice Chair and President Brad Smith said the company remains "fully committed" to the deal and will appeal the CMA's decision.
"The CMAâs decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom," Smith said in a statement. "We have already signed contracts to make Activision Blizzardâs popular games available on 150 million more devices, and we remain committed to reinforcing these agreements through regulatory remedies. Weâre especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works."
Microsoft (MSFT) shares rose more than 7.5% in pre-market trading, powered by strong earnings results.
Last month, the CMA narrowed its scope of the deal to focus on cloud gaming as it found that the deal would not reduce competition in the console gaming market. 
The CMA added that Activision's (ATVI) games, including Call of Duty, Overwatch and World of Warcraft are not yet on any cloud gaming services, but there is evidence "it will have strong incentives to do so, particularly given the significant growth projections for cloud gaming."
Lawyers for Microsoft (MSFT) recently met with the agency to discuss proposals to allow the deal to go through. 
In February, Microsoft (MSFT) Corporate Vice President and Deputy General Counsel Rima Alaily told Seeking Alpha the company is committed to offering "effective and easily enforceable solutions" that address the CMA's concerns.
"Our commitment to grant long term 100% equal access to Call of Duty to Sony, Nintendo, Steam and others preserves the dealâs benefits to gamers and developers and increases competition in the market," Alaily said at the time.
The Microsoft (MSFT)-Activision (ATVI) deal has come under intense scrutiny across the globe, including in the U.S. by the Federal Trade Commission.
Brazil approved the transaction in October while Chinese game developers were said to recently give positive feedback on the deal. One third-party in China expressed concern about the deal, Seeking Alpha previously reported.
In February, Microsoft (MSFT) signed deals with Nintendo (OTCPK:NTDOY) and Nvidia (NVDA) to bring games to their respective platforms, including Call of Duty, opening up the popular game to more than 150M new players.
Sony (SONY) has remained the lone holdout, repeatedly expressing concern about the deal.
Earlier this year, Morgan Stanley said investors should buy Activision (ATVI) as it could become an activist target if the Microsoft (MSFT) deal goes awry.
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