The odds have definitively changed:
Microsoft (MSFT)-Activision (ATVI) Spread Hits Lowest Since Merger Announced - Bloomberg
Activision rallied 5.9% on Friday to $84.39, the highest since August 12, 2021. The surge came after the UK Competition and Markets Authority narrowed the scope of their merger probe, putting the stock around 11% below Microsoft's $95-per-share offer. The gap was 23% when British regulators voiced opposition to the tie up back in February.
The market is currently pricing in roughly 50% odds of the deal being completed, assuming a $75 standalone value in Activision if the deal does not go through, according to Cowen's Aaron Glick. This compares to about 30% odds a month ago, but at the time, market was pricing a $65 standalone value, he said.
"This seems to be a major pivot" from the UK's CMA, which is now saying Microsoft has no incentive to withhold Call of Duty from competitors, said Frederic Boucher, a risk arbitrage analyst at Susquehanna International Group.
This approval is the main regulatory roadblock, he added. However, the pivot "does not mean that the approval is a done deal," Boucher noted, since it still has an issue related to cloud gaming.
On the other hand, if there was any doubt that the CMA already knew about the PS5 version of Redfall, the addendum to the PF includes this (page 12):
We remain of the view that console providers, including Microsoft, place significant value in having exclusive content to differentiate their platform and attract more users. Most first-party Xbox and PlayStation games are exclusive to their respective platform, and almost every studio that Microsoft has bought now makes games exclusive to Xbox. Moreover, where Microsoft has seen value in making multiplatform third-party studio games exclusive to Xbox, it has done so (eg, the upcoming release in the Redfall franchise following the Bethesda acquisition).
So, as we said the CMA already knew about it and the statement from Arkane this week changed nothing.
This bit about partial foreclosure is also very interesting, because if the deal goes through and MS is in the mood, I think that this is legally opening the door to exclusive content, perks or availability (only on Game Pass, for example) for COD (page 13):
We have not seen any robust evidence to suggest that PlayStation users would switch from PlayStation to Xbox at the same rate in response to partial and total foreclosure strategies. We consider that it is unlikely that they would do so, since under a partial foreclosure strategy CoD would still be available on PlayStation (albeit not at the same time, or not with the same exact content). Given that any deterioration in PlayStation's offering would be more modest under a partial foreclosure strategy, we would expect that only a fraction of gamers would switch to Xbox. On this basis, we have provisionally concluded that Microsoft would not have the ability to foreclose PlayStation on the basis of partial foreclosure strategies.
I don't think that it will happen in the short - medium term because MS has said multiple times in public and private that they want full parity. But right now the reality is that the EC and CMA doesn't care about that anymore (from a legal point of view).
Regarding COD on Game Pass, if the deal goes through it's important to remember that MS is limited in that regard and that Sony will have access to COD until the end of 2024, no matter what:
Microsoft has publicly stated that it plans to "launch Activision Blizzard games into Game Pass". Microsoft's intention is that future Activision releases, including Call of Duty, will be made available on Game Pass on the day of release, similar to Microsoft's first-party content. This is subject to existing contractual obligations with Activision, which will be honoured (REDACTED).
So, if Sony wants to let the dust settle a bit and avoid negotiating the new deal until the start of 2024, I think that could be an option for them.
