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Microsoft (MSFT)-Activision Deal Gets UK Regulators' Nod

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Microsoft (MSFT - Free Report) recently gained approval for the $69 billion acquisition of Activision Blizzard by the U.K. competition watchdog, Competition and Markets Authority (“CMA”).

This decision comes after Microsoft restructured the deal, wherein the company will not acquire the cloud gaming rights held by Activision.

Instead, the cloud gaming rights will be sold to an independent third party, Ubisoft Entertainment SA (UBSFY - Free Report) , before the deal is completed. This move establishes Ubisoft as a key supplier of content to cloud gaming services, which is similar to the role ATVI would have played.

The condition set by the CMA is that the sale of Activision's cloud streaming rights must be completed before the merger.

The CMA views Microsoft's concession to transfer cloud streaming rights as a game-changing move that will promote competition in the growing cloud gaming market. This move is designed to prevent MSFT from having a stranglehold over this market and aims to ensure more competitive prices, better services and more choices for consumers.

Shares of this Zacks Rank #3 (Hold) company have gained 36.7% year to date compared with the Zacks Computer and Technology sector’s return of 36.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Activision has narrowed its focus onto its biggest franchises — Call of Duty, Warcraft, Diablo and Overwatch. It also owns classic series like Starcraft, Crash Bandicoot, Spyro, Tony Hawk and Guitar Hero, which may see new life under MSFT’s ownership.

However, despite the merger, popular titles, such as Call of Duty: Modern Warfare 3 and Diablo 4, might not be made immediately available on Xbox Game Pass this year. Activision Blizzard plans to start bringing its games to the subscription service in 2024.

Microsoft Relinquishes Activision’s Cloud-Gaming Rights Outside Europe

Microsoft remains committed to providing cloud streaming rights in the European Economic Area, a region that constitutes the 27 European Union (EU) members plus Iceland, Liechtenstein and Norway.

The deal with Activision Blizzard will bring an end to a 20-month process of regulatory approvals and battles and comes after EU regulators approved the deal with additional concessions from Microsoft. As part of these concessions, consumers in EU countries will be able to stream ATVI PC and console games through any cloud gaming service of their choice.

Ubisoft will acquire the cloud gaming rights to Activision Blizzard titles outside of EU markets for a period of 15 years, giving UBSFY the ability to license these titles back to Microsoft for inclusion in Xbox Cloud Gaming.

Ubisoft will have the freedom to offer Activision's games directly to consumers and to all cloud gaming service providers in various ways, including buy-to-play or subscription services. The deal with UBSFY also requires MSFT to make Activision games available on operating systems other than Windows and support game emulators upon request.

The company has been working to obtain regulatory approval for the transaction closure and has made binding legal commitments to address concerns. These commitments ensure that Call of Duty and other Activision Blizzard games will be available on rival consoles, including Sony (SONY - Free Report) and cloud streaming platforms.

To alleviate regulatory concerns and promote competition in the cloud gaming market, Microsoft has signed agreements with Nintendo and Nvidia. These agreements commit to keeping ATVI games available on competing platforms for at least 10 years, further ensuring access to these games on various platforms.

Microsoft is currently facing a demand for $28.9 billion in back taxes from the U.S. Internal Revenue Service (IRS), which marks a significant escalation in one of the largest corporate tax disputes in recent times.

The disclosure of IRS notices came just under two weeks before Microsoft plans to announce its financial results for the first quarter of fiscal 2024.

The Zacks Consensus Estimate for MSFT’s first-quarter fiscal 2024 revenues is pegged at $54.42 billion, indicating year-over-year growth of 8.57%. The consensus mark for earnings is pegged at $2.65 per share, suggesting a year-over-year increase of 12.77%.

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