Microsoft’s 68.7 billion dollar (£55 billion) takeover of gaming firm Activision Blizzard has been blocked by the UK competition watchdog, in a potentially fatal blow to one of the technology industry’s biggest ever deals.
The Competition and Markets Authority (CMA) said it has prevented the mammoth buyout over concerns in the cloud gaming sector.
Xbox owner Microsoft struck a deal to buy the maker of Candy Crush and Call Of Duty in January 2022.
Microsoft and Activision have both said they will appeal the decision.
Activision, which also makes the Crash Bandicoot and Spyro games, said it will “reassess our growth plans for the UK” as a result.
Microsoft meanwhile warned that the move “discourages technology innovation and investment in the UK”.
The CMA argued that the groups failed to address its worries over protecting innovation in the fast-growing cloud gaming market.
The watchdog said the move will make Microsoft stronger in cloud gaming – where video games are played using remote servers and have no need for downloads – “stifling competition in this growing market”.
It claimed that Microsoft already accounts for between 60% and 70% of cloud gaming services.
Microsoft submitted a proposal in an effort to address concerns but the regulator said this contained a “number of significant shortcomings”.
Martin Coleman, chair of the independent panel of experts conducting the CMA investigation, said: “Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage, giving it the ability to undermine new and innovative competitors.
“Microsoft engaged constructively with us to try to address these issues and we are grateful for that, but their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market.”
Brad Smith, vice chair and president of Microsoft, said: “We remain fully committed to this acquisition and will appeal.
“The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom.
“We have already signed contracts to make Activision Blizzard’s popular games available on 150 million more devices and we remain committed to reinforcing these agreements through regulatory remedies.
“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.”
A spokeswoman for Activision Blizzard said: “The CMA’s report contradicts the ambitions of the UK to become an attractive country to build technology businesses.
“We will work aggressively with Microsoft to reverse this on appeal.
“The report’s conclusions are a disservice to UK citizens, who face increasingly dire economic prospects.
“We will reassess our growth plans for the UK. Global innovators large and small will take note that – despite all its rhetoric – the UK is clearly closed for business.”