Illustration of Microsoft and Activision Blizzard game characters
Microsoft logo is seen on a smartphone placed on displayed Activision Blizzard's games characters in this illustration taken January 18, 2022. Reuters

Britain will block Microsoft's $69 billion acquisition of "Call of Duty" maker Activision Blizzard over concerns it would hinder competition in cloud gaming, dealing an unexpected blow to the biggest-ever deal in gaming.

The country's antitrust regulator said on Wednesday that Microsoft's commitment to offer access to Activision's multi-billion dollar "Call of Duty" franchise to leading cloud gaming platforms would not effectively remedy its concerns.

Microsoft's president Brad Smith said in a statement the company remained fully committed to the acquisition and would appeal the decision, while Activision said it would "work aggressively" with Microsoft to reverse it.

Activision's CEO Bobby Kotick told staff it was not "the news we wanted - but it is far from the final word on this deal".

"We will reassess our growth plans for the UK," the company said in a separate statement. "Global innovators large and small will take note that - despite all its rhetoric - the UK is clearly closed for business."

Shares in Activision, which also makes "Candy Crush", "Overwatch" and "World of Warcraft", fell nearly 12% to $76.65, moving further from Microsoft's offer price of $95 per share. The video-game publisher was set to erase nearly $8 billion in market valuation, if the losses hold.

The gaming company also reported quarterly results on Wednesday, a day earlier than scheduled, beating quarterly bookings estimates although that seemed to do little to allay investor concerns about Britain's move.

Shares in Microsoft rose to their highest in more than a year, a day after the maker of Office software beat Street estimates for quarterly revenue and profit.

The company announced its Activision bid in January 2022 to boost its firepower in a video gaming market led by Tencent and Sony.

"We expect that Microsoft will continue to fight this," Evercore ISI analyst Kirk Materne said in a note.

If Microsoft throws in the towel, it would free up more than $60 billion in cash flow to either return to investors or make investments in AI-related offerings, he noted.

The Activision deal is the biggest involving technology companies the Competition and Markets Authority (CMA) has blocked, the latest sign the UK watchdog is ready to take on Big Tech after blocking in 2021 Facebook-owner Meta's acquisition of Giphy.

Europe will decide on the Activision deal by May 22. The U.S. Federal Trade Commission is also seeking to block it.

CLOUD CONCERNS

The surprise ruling comes after the CMA last month dropped its concerns about the impact of the deal on the console market led by Sony's market-leading PlayStation.

That left cloud streaming services as the remaining hurdle, which Microsoft sought to overcome by signing licensing deals with the owners of streaming platforms including Valve Corp, Nvidia and Boosteroid.

It had already offered Sony - a vocal opponent of the deal - a 10-year "Call of Duty" licence, in line with an agreement to bring the multi-billion dollar franchise to Nintendo's Switch.

The CMA said the cloud gaming market was forecast to be worth 11 billion pounds ($13.7 billion) globally by 2026.

"Cloud gaming is growing fast with the potential to change gaming...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," said CMA panel chair Martin Coleman.

"This means that it is vital that we protect competition in this emerging and exciting market."

Microsoft offers Xbox Game Pass, a subscription service for users of its Xbox console, and PC Game Pass for PC users.

The CMA said Microsoft had an estimated 60%-70% of global cloud gaming services as well as competitive advantages including owning Xbox, PC operating system Windows and cloud provider Azure.

($1 = 0.8019 pounds)