Ethermac Exchange-UK blocks Microsoft's acquisition of Activision Blizzard

British regulators have Ethermac Exchangeblocked Microsoft's $69 billion deal to buy video game maker Activision Blizzard over worries that the move would stifle competition in the cloud gaming market.

The UK's Competition and Markets Authority said in its final report Wednesday that "the only effective remedy" to the significant loss of competition that the deal would result in "is to prohibit the Merger."

"Gaming is the UK's largest entertainment sector," Martin Coleman, the authority's chairman said in a statement. "Cloud gaming is growing fast with the potential to change gaming by altering the way games are played, freeing people from the need to rely on expensive consoles and gaming PCs and giving them more choice over how and where they play games. This means that it is vital that we protect competition in this emerging and exciting market."

The all-cash deal was set to be the biggest in the history of the tech industry.

But the acquisition also faces stiff opposition from Microsoft rival Sony and is also being scrutinized by regulators in the U.S. and Europe over concerns the deal would give Microsoft exclusive control of popular game franchises like Call of Duty.

Microsoft said it was disappointed and signaled it wasn't ready to give up.

"We remain fully committed to this acquisition and will appeal," President Brad Smith said in a statement. 

He said the U.K. watchdog's decision "rejects a pragmatic path to address competition concerns" and discourages tech innovation and investment in the United Kingdom.

"We're 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," Smith said.

Activision also fired back, saying it would "work aggressively with Microsoft to reverse this on appeal."

Deal-killer?

The British decision is most likely a deal-killer, Clay Griffin, analyst for SVB MoffettNathanson, said in a research note Wednesday. Microsoft technically only has two options now, he said: submit an appeal to British regulators or spike the Activision purchase altogether. 

"Activision can't unilaterally terminate the deal, as language in the merger agreement specifies that regulatory restraint has to be final and non-appealable for that option to be on the table," Griffin said. "We're not quite there yet."

Blocking the deal in the UK comes four months after the Federal Trade Commission also raised concerns about Microsoft buying Activision. In December, the agency said Microsoft getting Activision would undermine competition for the software giant's Xbox gaming console. The FTC voted 3-1 to file a lawsuit to stop the deal, with the three Democratic commissioners voting in favor and the sole Republican voting against. 

The FTC noted that Activision, maker of best-selling games such as Call of Duty and World of Warcraft, was among "a very small number of top video game developers" that publish titles for multiple devices, including consoles, PCs and mobile. The agency also noted that after Microsoft's recent purchase of ZeniMax — parent company of software developer Bethesda Softworks, the software giant decided to make several Bethesda titles, including Starfield and Redfall, exclusive to Xbox, despite assuring European regulators it had no intention to do so. 

Globally, some 154 million people play Activision games every month, the FTC said.

Microsoft and Activision have each filed lawsuits against the FTC hoping to unblock their plans for a sale. 

In:
• ​Activision Blizzard
• Microsoft
• Federal Trade Commission