It’s crunch time for Microsoft ( MSFT ) and Activision Blizzard ( ATVI ) as the biggest gaming acquisition of the year really starts to heat up. The European Union’s competition watchdog said on Tuesday it would continue an in-depth investigation into MSFT’s $68.7bn (£56bn) takeover of ATVI. ATVI’s share price has risen 7% since the acquisition was announced in January, while MSFT’s share price has plummeted 33%. The takeover saga has seen many twists and turns and now there is growing fear that, almost a year later, it may not happen.

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Microsoft (MSFT) stock price chart.

The acquisition of MSFT is being examined with a fine-toothed comb

Regulators are closely scrutinizing Microsoft’s takeover of gaming giant Activision Blizzard, and it was announced last week that the tech company had not offered remedies to the European Commission (EC), which is reviewing the legality of the acquisition. Because Microsoft is not offering concessions to the EC, the panel decided to conduct a Phase 2 investigation. Microsoft only commented in a statement that it continues to work with the European Commission to address valid market concerns. The EC, which opened its original investigation in September, believed it could reduce competition in the markets for game console users, distribution of personal computers, video games and PC operating systems. He added that he is concerned that Microsoft may block access to Activision Blizzard games to other game distributors, especially the publisher’s most successful franchises such as Call of Duty. “We must ensure that opportunities remain for future and existing distributors of PC and console video games, as well as for competing PC operating system vendors,” the Commission said. “It’s about making sure the gaming ecosystem stays alive for the benefit of users in a rapidly evolving field.” The move to an in-depth phase 2 investigation is a longer investigation and a sign that the regulator is concerned the deal could limit competition within the bloc. The EC said it has 90 working days, until March 23, to decide.

Rising wave of uncertainty

Meanwhile, the UK’s Competition and Markets Authority (CMA) has also launched its Phase 2 investigation into Microsoft, and on September 15 the group said: “The CMA has referred Microsoft Corporation’s anticipated acquisition of Activision Blizzard, Inc. for an in-depth investigation.” MSFT has until March 1 to respond to the CMA’s concerns. Microsoft hopes that the acquisition of ATVI will help boost competition in the market among some of its heavyweight peers, such as Sony ( SNE ). But Sony is none too happy about the deal and has already expressed concern over the rights to the popular war game Call of Duty (CoD), which is produced by ATVI. For Sony, the maker and owner of PlayStation – Microsoft’s main X-Box rival – the key conflict is whether MSFT will make CoD an X-Box exclusive once the acquisition is made. In September, MSFT offered to let Sony keep the game on PlayStation for three years – an offer Sony said was “inadequate on many levels”. MSFT Gaming CEO Phil Spencer revealed to The Verge that the company is committed to keeping Call of Duty on PlayStation for “several more years” beyond Sony’s current marketing deal with ATVI. This move was not welcomed by Sony, who believe that it is not a big enough commitment and in reality several years, it will probably mean three.

Activision Blizzard (ATVI) stock price chart.

ATVI investor unloads shares

Despite this growing wave of uncertainty, Microsoft Gaming CEO Phil Spencer is bullish on the acquisition, and at a recent Wall Street Journal Tech Live conference, Spencer said the regulators investigating the deal were “fair and honest” and are confident that the acquisition will be through. With that said, investors are getting anxious. First, ATVI shares remain below MSFT’s proposed offer of $95 per share as investors assess the risk that the takeover may never happen. Second, some investors believe that the regulatory questions will kill the deal, and as a result some are walking away and selling their ATVI shares. Reports surfaced last month that a seller offloaded 3.7 million shares of ATVI, in a move that could indicate a lack of confidence that Microsoft’s acquisition of Activision Blizzard will go through. As the deadline to complete the acquisition approaches and regulators begin further investigations into the deal, time will tell what happens next and where this acquisition is headed.

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