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Microsoft wants to take over Activision Blizzard. At what stage is the record merger in the gaming industry. What stands in the way?

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It will be the largest merger in the history of the industry. Microsoft wants to acquire Activision Blizzard, a giant that produces world-renowned games, for almost $70 billion. However, two obstacles stand in the way – US and UK regulators.

Over the last 10 years, Microsoft has purchased several smaller and larger gaming companies. In 2014, it acquired Mojang and thus the Minecraft brand. For a year and a half, the American technology giant has been looking for Activision Blizzard. In early 2022, it made an offer of $68.7 billion – it would be the largest acquisition in the history of the industry.

For this reason, it is also controversial. As he pointed out in February in an interview with TVN24 Biznes Grzegorz Bobrek, former head of TVgry, co-founder of the To Again Oni channelconcerns are related to maintaining competition in the gaming market after the acquisition is finalized.

A disastrous year, or the genesis of the acquisition

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“2021 was a bad year for Activision. At the end of it, Activision’s share price fell by 35 percent. The confluence of disturbing headlines, delayed games and poor fan reaction to the latest installment of Call of Duty took its toll” – indicated the Variety portal, writing about the beginning of the road to the preliminary contract.

– They were in a difficult situation. (…) New Call of Duty came out and turned out to be a flop. Stocks were overpriced. Some Blizzard titles have been delayed,” said Clay Griffin, a video game analyst at MoffettNathanson Research, as quoted by Variety.

The portal emphasized that at the same time, Microsoft’s Xbox video game division was increasingly lagging behind its biggest competitors – Sony PlayStation and Nintendo. – Microsoft had to do something bold for Xbox. It was the best time for both sides to say, hey, what’s a fair price and how can we do that,” Griffin said.

UK veto, US veto

Currently, the merger is blocked by, among others, the British Competition and Markets Authority (CMA). Microsoft’s appeal against the UK regulator’s decision to block the proposed acquisition of Activision Blizzard will go to trial on July 24.

This means Microsoft is facing a tumultuous summer with two legal battles with regulators: one against the CMA and one against the Federal Trade Commission USA (FTC), explained The Verge.

He added that Microsoft is now focusing mainly on the CMA decision. As the reason for the veto, the British regulator indicated that, according to estimates, Microsoft controls about 60 to 70 percent of global cloud gaming services and giving control of Activision Blizzard games would give the American giant an alarming advantage.

In turn, the FTC in December 2022 sued Microsoft to block the transaction. The commission argued that Microsoft had a history of buying high-value games and only offering them on its own Xbox platform. The court battle will begin with an evidentiary hearing scheduled for August 2.

Activision Blizzard Acquisition – Where Are We?

According to Bloomberg, Microsoft CEO Brad Smith will also meet this week with the Chancellor of the Exchequer Jeremy Hunt. Smith is to express his frustration with the shocking decision of the CMA.

Microsoft confirmed that Smith will be in London, where he will deliver a “scheduled speech about the potential of artificial intelligence and the need for thoughtful regulation.” He will also conduct private discussions on other topics, “including the proposed acquisition of Activision Blizzard, as we remain committed to finding creative and constructive ways to address the remaining regulatory issues,” a Microsoft representative told Bloomberg.

The agency added that Hunt had previously criticized the CMA’s veto, saying recently at a business conference that competition regulators needed to understand their responsibility for economic growth.

One Bloomberg source said ministers were “dissatisfied” with Smith’s criticism of the CMA in interviews where he claimed that European Union – which approved the acquisition – is a better place to be running a business than Great Britain. While the government has no formal role in enforcing national competition rules, CMA board members are appointed by the UK’s business department.

One of the extreme options may be to bypass the British injunction and continue the transaction or withdraw Activision from the British market, a Bloomberg source reported, confirming previous reports on this matter.

According to the agency, Microsoft is likely to use the EU findings in its legal arguments against the CMA, after EU officials conditionally agreed to this record-breaking merger in the gaming market.

Bloomberg reported that the British Prime Minister’s office declined to comment, and Activision did not respond to a request for comment. Confidential talks are to take place during next week’s London Tech Week.

According to the CMA, the merger would strengthen Microsoft’s advantage in the cloud gaming market, but the vice-president of the European Commission, Margrethe Vestager, is of a different opinion and called it “pro-competitive” and said it could “kick off” the cloud streaming market, Bloomberg pointed out.

What are the chances of the merger being successful?

Interestingly, they had no major problems with the transaction and accepted it, apart from the European Union, among others ChinaJapan or South Korea.

“We see China’s acceptance as further evidence of the convergence of views among the world’s key economies and that this deal poses no risk to consumers and therefore should go ahead. As such, we believe that the CMA’s objection looks even more surprising, which may reduce its impact. significant to the final outcome of the closing transaction,” said analyst Sarah Hindlian-Bowler of financial services firm Macquarie in a memo quoted by Barron’s.

Hindlian-Bowler added that there are still some hurdles, but China’s agreement shows “an increasingly clear path to completing the process.”

The most popular games created by Activision Blizzard include: World of Warcraft, Call of Duty, Diablo, Overwatch, Hearthstone, Candy Crush, Starcraft and Warcraft.

In 2022, AB’s revenues amounted to approximately USD 7.5 billion, and net profit – approximately USD 1.5 billion.

Main photo source: ALDECA studio/Shutterstock

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