The UK Competitions and Markets Authority (CMA) has blocked Microsoft's attempted takeover of Activision Blizzard.
In a statement issued this afternoon, the CMA said the takeover would hand Microsoft an unfair advantage in a fast-growing market.
"The deal would reinforce Microsoft’s advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft," the CMA said.
"The evidence available to the CMA indicates that, absent the merger, Activision would start providing games via cloud platforms in the foreseeable future.
"The cloud allows UK gamers to avoid buying expensive gaming consoles and PCs and gives them much more flexibility and choice as to how they play. Allowing Microsoft to take such a strong position in the cloud gaming market just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities."
Following an earlier probe by the CMA, Microsoft had presented evidence to the watchdog in an attempt to allay the organisation's fears about the potential impact of the deal on the gaming market. In particular, Microsoft submitted a proposal offering to govern which games it would be able to make available on certain platforms over a decade-long period.
But, the CMA said, the evidence it provided did not go far enough to assuage its concerns.
"Microsoft’s proposal contained a number of significant shortcomings connected with the growing and fast-moving nature of cloud gaming services," it said.
"It did not sufficiently cover different cloud gaming service business models, including multigame subscription services.
"It was not sufficiently open to providers who might wish to offer versions of games on PC operating systems other than Windows.
"It would standardise the terms and conditions on which games are available, as opposed to them being determined by the dynamism and creativity of competition in the market, as would be expected in the absence of the merger."
This afternoon Activision Blizzard shares were down more than 9% on the news. At the time of writing, Microsoft shares were up 6%.
Quilter Cheviot has described the news as a "major setback".
"Microsoft’s anxious wait is finally over, but the Competition and Markets Authority’s (CMA) decision to prevent its purchase of Activision over fears the deal would stifle competition will have come as a real blow," equity research analyst Ben Barringer said.
"The CMA’s decision has been one of the highest hurdles that Microsoft has had to face. Ever since Brexit, the UK regulator has taken an actively harsh stance when it comes to anti-competitive behaviour. This stance is ultimately what has led to its decision to put a halt to the purchase, as it concluded that Microsoft already has a dominant position and 'cloud' gaming needs a free, competitive market to drive innovation and choice.
"While Microsoft had already proposed remedies to soften the CMA’s view, the difficulty lies in the fact that the behavioural remedies it proposed would have relied on ongoing regulation and monitoring which the CMA did not view favourably."
Microsoft is expected to appeal the decision.
