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Activision stock slips after UK regulator raises concerns on Microsoft deal

The stock of Microsoft’s (MSFT) acquisition target, Activision Blizzard (ATVI), is under pressure Wednesday despite Activision’s strong third-quarter earnings report Tuesday that included a jump in monthly active users and net bookings.

Activision stock is down more than 3% in early trading after the UK's antitrust regulator raised competition concerns about Microsoft's proposed $69 billion purchase of the "Call of Duty" maker.

The Competition and Markets Authority (CMA) in the UK said in provisional results of an investigation that the Microsoft-Activision deal could "result in higher prices, fewer choices, or less innovation for UK gamers."

"Our job is to make sure that UK gamers are not caught in the crossfire of global deals that, over time, could damage competition and result in higher prices, fewer choices, or less innovation," Martin Coleman, chair of the investigation, said in a statement. "We have provisionally found that this may be the case here."

The U.S. Federal Trade Commission — which sued to block the acquisition — and the European Commission continue to evaluate the deal.

“Well, that is the $69 billion question right now,” Raymond James internet and digital media analyst Andrew Marok told Yahoo Finance Live on Tuesday when asked if he thought the deal would move ahead (video above).

An acquisition of Activision Blizzard, owner of the uber-popular “Call of Duty” gaming franchise, would catapult Microsoft into the position of the third-largest gaming company in the world by revenue, after Tencent and Sony.

Microsoft is also eyeing the deal as an opportunity to solidify dominance in the gaming industry and potentially eclipse Sony in the still-nascent cloud gaming industry, estimated by data firm Newzoo to jump from $2.4 billion in revenue in 2022 to $8.1 billion in 2025.

A central concern for competition regulators is that Microsoft's ownership of the “Call of Duty” franchise "would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business," as the FTC has said.

Microsoft logo is seen on a smartphone placed on displayed Activision Blizzard logo in this illustration taken January 18, 2022. REUTERS/Dado Ruvic/Illustration
Microsoft logo is seen on a smartphone placed on displayed Activision Blizzard logo in this illustration taken January 18, 2022. REUTERS/Dado Ruvic/Illustration

The latest title in the franchise “Call of Duty: Modern Warfare 2” topped out at $1 billion in sales over its first 10 days on the market. Cutting out Sony would mean eating into “Call of Duty’s” sales.

Microsoft says it offered to sign a 10-year agreement to continue offering “Call of Duty” on Sony's PlayStation on the same schedule that it offers the franchise on its Xbox.

In response to the UK's preliminary statement, Rima Alaily, Microsoft's corporate vice president and deputy general counsel, said 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 deal’s benefits to gamers and developers and increases competition in the market," Alaily added.

The FTC has accused Microsoft of backtracking on assurances given to European Union antitrust regulators when in 2021 Microsoft acquired gaming content developed by Bethesda Softworks. Despite the assurances, Microsoft made some of Bethesda's games exclusive to its gaming ecosystem, the FTC said. The agency also expressed concerns that Microsoft is one of only two high-performance console makers.

Marok said the U.K.’s ruling would set the tone for the U.S. decision. He noted that some experts are a little bit more cautious on the prospect of both regulators approving Microsoft’s acquisition and that some reports suggest that the U.K. more optimistic on approving the deal.

“The UK's competition markets authority is likely to issue their provisional findings in the review of the deal any day now, we think, at this point,” Marok said, “and that will be very indicative as to where the deal is likely to progress.” Provisional reports, he explained, often reveal the agency’s final decision.

“And we do believe that as the U.K. goes … the other large geographies like the European Union and the U.S. are likely to follow,” Marok said.

In December, Microsoft President Brad Smith wrote an op-ed in The Wall Street Journal saying that the company's acquisition of Activision would be a boon for gamers and developers by making Microsoft a competitive rival to Sony.