Microsoft and Activision acquisition deal 'isn't dead’, analysts confirm

The Microsoft and Activision Blizzard acquisition deal ‘isn’t dead' yet, analysts confirm.

Yesterday, in a somewhat unexpected turn of events, Microsoft’s proposed $68.7 billion takeover of Activision Blizzard hit a major stumbling block as the UK market regulator rejected the takeover. The proposed takeover was rejected in the UK over the belief that Microsoft would have an unfair advantage over its competitors as well as concerns with its potential to alter the future of the fast-growing cloud gaming market, with the Xbox giant already owning 60% to 70% of cloud gaming services globally.

It's Call of Duty that Microsoft really wants to add to its repertoire.

Following the block from the UK's CMA, Microsoft president Brad Smith said: “We remain fully committed to this acquisition and will appeal. The CMA's (Competition and Markets Authority) decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom.”

The CMA argued that should the $68.7 billion merger happen, it would give Microsoft “the incentive to increase the price of Game Pass commensurate with the value enhancement of adding Activision’s valuable content to it”, and that “even a modest price increase would significantly reduce or eliminate any potential relevant customer benefits.” It’s safe to assume that neither Microsoft nor Activision Blizzard will take this rejection lying down and that certainly appears to be the case, as reported by VGC. That’s according to Michael Pachter, the managing director of equity research at Wedbush Securities as well as Piers Harding-Rolls, the research director of games at Ampere Analysis.

Pachter told VGC that while the CMA has thrown “a wrench” into the works, “the deal isn't dead”. He believes that should Microsoft appeal (and they will), that rejection could be overturned. However, even if the appeal is rejected, Pachter believes that the deal could still be sealed if concessions are made by the green brand. Pachter believes that such concessions could include keeping titles such as Call of Duty off the Xbox Game Pass subscription service.

“It can separate Game Pass UK from Game Pass elsewhere, either by creating a separate entity in the UK that can easily be monitored by the CMA or by an appointed third party, or by merely managing the UK business separately,” he wrote. “We expect that this will be sufficient for the CMA to rule the merger acceptable on the condition that Activision titles are not available on Game Pass. “Microsoft will agree to this condition subject to an appeal: should it prevail, it captures full value from the acquisition; should it fail, it captures most of the value, but its prospects for Game Pass growth in the UK (a low percentage of global GDP) will be limited due to a lower amount of content available on the service," he said.

The deal may not happen overnight, but Pachter is confident the deal will still happen, eventually. “While successfully appealing a CMA decision is a difficult task for several reasons, we think the CMA is on the wrong side of the law on this ruling, and believe its concerns can be addressed,” he said. “Ultimately, the ruling hinges on the CMA’s belief that Microsoft will have pricing power due to its market dominance in cloud gaming. We think that the CMA’s belief is correct, and Microsoft erred in not addressing this issue before the CMA’s ruling. However, we firmly believe that Microsoft is willing to concede maintaining pricing at $15 per month plus inflation, and we believe the CMA will reverse its position if Microsoft makes that offer.”

In another statement provided to VGC by Harding Rolls, he said: “Historically, a majority of CMA appeals have been unsuccessful but there is still a chance this can be overturned."