Microsoft vows to fight to preserve the biggest tech acquisition ever, saying the UK has a ‘flawed understanding of this market’

The Competition and Markets Authority said in its final report that “the only effective remedy” to the substantial loss of competition “is to prohibit the Merger.” The companies have vowed to appeal.

The all-cash deal faced stiff opposition from rival Sony and was also being scrutinized by regulators in the U.S. and Europe over fears that it would give Microsoft control of popular game franchises like Call of Duty, World of Warcraft and Candy Crush.

The U.K. watchdog’s concerns centered on how the deal would affect competition in cloud gaming, which involves streaming games to tablets, phones and other devices. That frees players from the need to buy expensive consoles and gaming computers.

Cloud gaming has the potential to change the industry by giving people more choice over how and where they play, said Martin Colman, chair of the Competition and Markets Authority’s independent expert panel investigating the deal.

“This means that it is vital that we protect competition in this emerging and exciting market,” he said.

Microsoft said it was disappointed and signaled it wasn’t ready to give up.

“We remain fully committed to this acquisition and will appeal,” President Brad Smith said in a statement. He said the watchdog’s decision “rejects a pragmatic path to address competition concerns” and discourages tech innovation and investment in the United Kingdom.

“We’re especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works,” Smith said.

Activision also fired back, saying it would “work aggressively with Microsoft to reverse this on appeal.”

Regulators had dropped concerns last month that the deal would hurt console gaming, saying it wouldn’t benefit Microsoft to make Call of Duty exclusive to its Xbox console.

The watchdog said Wednesday that it reviewed Microsoft’s proposals to ease competition concerns “in considerable depth” but found those solutions would require its oversight, whereas preventing the merger would allow cloud gaming to develop without intervention.

Microsoft already has a strong position in the cloud computing market and regulators concluded that if the deal went through, it would reinforce the company’s advantage by giving it control of key game titles.