Microsoft shares jumped 9 percent on Tuesday after a strong earnings report that beat analysts’ expectations and rode a wave of enthusiasm over the company’s prospects in artificial intelligence. The rally continued on Wednesday, when shares were up by more than 7 percent even after the UK’s Competition and Markets Authority said it intends to block the software giant’s planned $68.7 billion acquisition of Activision Blizzard, citing concerns about the merger’s impact on “the growing and fast-moving” cloud gaming sector, while providing a clean bill of health in the console market. Microsoft says it will appeal the decision.

The CMA opened its merger investigation in July 2022 and published its final report Wednesday, along with a summary. “The measure marks a major blow for the U.S. tech giant, as it seeks to convince authorities that the deal will benefit competition,” CNBC reports.

“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,” the CMA said of its decision in a press release.

Microsoft had offered the CMA assurances to resolve its concerns — including written agreements with competitors specifying “what games must be offered by Microsoft to what platforms and on what conditions over a ten-year period.”

“Given the remedy applies only to a defined set of Activision games, which can be streamed only in a defined set of cloud gaming services, provided they are purchased in a defined set of online stores, there are significant risks of disagreement and conflict between Microsoft and cloud gaming service providers, particularly over a 10-year period in a rapidly changing market,” the CMA found.

The CMA called gaming “the UK’s largest entertainment sector” and said cloud gaming has the potential to positively impact consumers by “freeing people from the need to rely on expensive consoles and gaming PCs and giving them more choice over how and where they play games,” which means the authority must act to protect emerging competition.

A spokesperson for Activision told the BBC News that the company plans to “work aggressively with Microsoft” to reverse the decision, adding that “the CMA’s report contradicts the ambitions of the UK” to attract tech firms. “The UK is clearly closed for business,” the Activision rep concluded. Likewise, Microsoft vice chairman and president Brad Smith reaffirmed the company’s commitment to closing the deal.

Meanwhile, Microsoft reported revenue up 7 percent to $52.9 billion in fiscal Q3, while net income was up 9 percent, at $18.3 billion year over year for the period ended March 31, and the guidance was steady ahead.

CNBC on Wednesday quoted Goldman Sachs analyst Kash Rangan calling Microsoft “one of the most compelling investment opportunities in the technology industry and across sectors.”

Related:
UK Blocks Microsoft’s $69 Billion Bid for Activision, a Blow for Tech Deals, The New York Times, 4/26/23
Microsoft, Activision Decision Shows Tech Companies Face New Scrutiny from Regulators, The Wall Street Journal, 4/26/23