Yahoo Finance Microsoft's (MSFT) $75B Activision Bid Depends on Call of Duty
Microsoft’s MSFT deal to acquire Activision Blizzard ATVI is closely monitored by competition regulators and passionate gamers of Call of Duty, a highly popular video game franchise. The ongoing discussion revolves around whether Microsoft's proposed $75 billion acquisition of Activision Blizzard (owner of Call of Duty) could grant an unfair advantage to dominate the gaming industry.
The Competition and Markets Authority (CMA) is anticipated to review its decision, indicating whether it intends to block or approve Microsoft's deal with specific conditions. The CMA has expressed concerns about potential competition issues in the console and subscription markets as well as emerging cloud gaming sector.
Microsoft announced the acquisition plan last year, aiming to enhance its existing business, which includes the Xbox console, the Halo franchise and Minecraft software. However, global regulators have raised objections, fearing that Microsoft's control could impede other platforms' access to Activision's most sought-after titles. It is important to note that the CMA's decision will precede rulings from the European Union and the U.S. Federal Trade Commission, both of which are engaged in a lengthy legal process after formally opposing the transaction.
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Why Did CMA Block the Deal?
The CMA expressed concerns about the potential impact on the U.K.'s cloud gaming market. It highlighted that Microsoft already holds approximately 70% of the global cloud gaming industry and the addition of Activision would further strengthen its dominant position.
The CMA also identified issues in Microsoft's agreements with cloud gaming competitors like Nintendo NTDOY and NVIDIA NVDA. The regulator suggested that if the merger was called off, the market could function adequately without the need for intervention.
MSFT has filed an appeal against the CMA's decision based on five grounds. One of the grounds is the assertion that the regulator committed "fundamental errors" in evaluating Microsoft's existing position in cloud gaming services, neglecting to consider the limitations posed by native gaming. Additionally, Microsoft argues that the CMA made a mistake by not properly considering three significant long-term commercial agreements that Microsoft had entered into with cloud gaming providers.
Challenging the CMA's decision at the Competition Appeal Tribunal is anticipated to be a time-consuming process, potentially lasting approximately nine months. Even if the appeal proves successful, the case will be returned to the CMA for further examination. Given the significance of time for both Microsoft and Activision, this delay can have important implications for its plans and operations.
Worldwide Status of This Acquisition
This Zacks Rank #3 (Hold) company’s acquisition deal has received approval in 37 markets, including the European Union, Japan, Ukraine and China, which are the largest gaming markets globally. However, the acquisition still requires approval in U.K., where it is currently going under review. Additionally, the deal is facing obstacles from the U.S. Federal Trade Commission.
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For fiscal fourth-quarter, MSFT expects Xbox content and services revenue growth in the low- to mid-teens due to third-party and first-party content as well as Xbox Game Pass.
Shares of Microsoft have gained 38.8% year to date compared with the Zacks Computer and Technology sector’s increase of 34.8% in the same period.
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