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Microsoft's bet on ChatGPT has it at the top of the AI mountain, but it just took a big stumble down the video game power ladder.
On Wednesday, the UK's antitrust regulator officially announced that it won't allow Microsoft to go through with its $69 billion acquisition of Call of Duty maker Activision Blizzard. The Competition and Markets Authority's rejection of the deal is sending chills down not just the spines of Microsoft and Activision Blizzard executives, but to dealmakers everywhere.
Microsoft's proposed acquisition of Activision Blizzard would have been the video game sector's biggest-ever deal. It came after Microsoft had shelled out a few billion here and there to acquire game studios, harvesting game titles it could then host -- exclusively if it so chose -- on its Xbox platform. But considering Activision Blizzard makes some wildly popular game titles, the worry from competitors (most notably Sony's PlayStation) was that Microsoft could use those rights as a cudgel, forcing gamers to switch to Xbox to play their favorite titles.
Microsoft tried desperately to convince regulators that it would refrain from turning Call of Duty into an Xbox exclusive, but it clearly failed to persuade Britain. The deal is still under scrutiny from US and EU regulators, but the CMA's decision will put a massive damper on the deal's future.
The regulatory stop sign comes at a time when dealmaking across all sectors is already weak:
- Global M&A shrank to its lowest level for a decade in the first quarter of 2023. This was, as JP Morgan's global head of M&A Anu Aiyengar put it, due to "extraordinary levels of volatility and uncertainty" putting many deal announcements on ice.
- Of course, lean times don't mean M&A grinds to a halt entirely; some big fish take the chance to swallow up corporate minnows for cheap. But for big tech companies with a big cash cache (read: just Apple) the tanked Microsoft-Activision deal might be enough to stop and pause.
Morgan Stanley CEO James Gorman, who just reported another quarter of extremely sluggish dealmaking activity, sounded sanguine about deal flow on his firm's earnings call last week, musing "We are seeing a growing M&A pipeline and some spring-like signs of new issuance emerging." But with antitrust authorities playing hardball, Gorman's prediction that deals could heat up in late 2023 and 2024 might go cold.
Save and Reload: Activision Blizzard CEO Bobby Kotick said in an internal email published on the company's website that it is appealing the decision. Although Kotick insisted the CMA's decision was "far from the final word," CMA rulings are tough to overturn -- as Meta learned when it was forced to relinquish its acquisition of gif library Giphy. Incidentally, Activision Blizzard was in the throes of a sexual misconduct scandal prior to the almost-deal with Microsoft, which resulted in staffers calling for Kotick's resignation.