The proposed merger between Microsoft Corporation and Activision Blizzard, Inc. has faced regulatory challenges, particularly from the UK's Competition and Markets Authority. Microsoft remains persistently committed to the deal and pledges to keep Activision games on other platforms. Despite these assurances, the odds of the merger completion are still relatively low (but the payoff is substantial) due to the recent CMA decision.
Downside risk appears limited, especially as the gaming company's financial outlook is positive with strong sales from recently launched Diablo IV. Given the $10 per share potential upside if the merger goes through and the FTC hearing is positive, the recommendation is to remain long on Activision, but be mindful of the potential for a significant stock price drop if the CMA decision holds.
Microsoft - Activision Deal May Close After All (NASDAQ:ATVI) | Seeking Alpha
If Corley rules in favor of Microsoft, it would effectively clear the path for the deal to close in the U.S. The FTC would likely withdraw its antitrust complaint, as it did when a judge declined to grant the regulator an injunction blocking Meta Platforms META +1.94% ' (META) acquisition of virtual-reality firm Within Unlimited. If the injunction is granted, Microsoft and Activision will likely walk away from the deal when it expires on July 18.
Activision stock recently closed at $84.30, which represents a $10.70 discount to the $95-a-share cash takeout price. Though the stock has rallied in recent weeks as investors re-evaluate the risks and rewards of owning it ahead of a major regulatory decision, there is clearly concern that the deal won't go through.
It might be time to sell. We still believe the deal could clear the remaining hurdles, but it won't be simple. Regulatory scrutiny has been elevated, with FTC Chair Lina Khan and regulators in the United Kingdom setting their sights on big mergers. A positive ruling in the U.S. is no guarantee, and the U.K.'s Competition and Markets Authority's decision to block the deal, currently being appealed, further complicates things. The deal would need to be renegotiated or extended by the July 18 deadline.
Activision’s Microsoft Saga Is Almost Over. It May Be Time to Sell the Stock. | Barron's
