The deal spread on Microsoft Corp.’s proposed takeover of Activision Blizzard Inc. is blowing out, with traders worrying their US$69 billion merger could sputter after U.K. antitrust regulators vetoed the combination.

Shares of the video-game maker slumped as much as 10 per cent to $77.90 on Wednesday, moving further away from Microsoft’s $95-per-share offer. That has widened the gap relative to the takeover bid price to $17.10 — compared with $8.26 Tuesday.

Although Microsoft is expected to appeal the decision, many traders and analysts see the U.K. ruling as a deal-ender.

“Essentially, there has never been a successful appeal in the UK on an antitrust decision,” said Aaron Glick, a merger arbitrage strategist at TD Cowen. “There does not appear to be a path forward for Microsoft.”

 “We think trading in Activision is reflecting market views of fair value,” Glick said. That means the market currently prices in zero to low probability the deal will close.

The U.K. Competition and Markets Authority isn’t alone in disputing the takeover bid. The U.S. Federal Trade Commission has already sued to block, and it still needs clearance from the European Commission and China.

Antitrust scrutiny is seen as a major regulatory hurdle for Microsoft’s takeover.

In March, the U.K. narrowed the scope of its probe, lifting traders’ optimism and sending the deal spread to its lowest since the merger announcement. 

The deal has been the center of attention for the merger arbitrage community since it was announced in January 2022. It is the largest pending transaction in the US, standing out at a time when traders have been facing a market stuck in the doldrums, with mostly smaller and private equity deals announced this year.

Investors are now shifting focus to Activision’s standalone value, with its earnings scheduled for Thursday after the closing bell. The deal’s closing deadline is July 18.

Among other transactions under review by the U.K. antitrust agency, VMware Inc. — which agreed to sell to Broadcom Inc. — fell 1.3 per cent, while IRobot Corp. — which is being targeted by Amazon.com Inc., slid 5.4 per cent.