Here’s the Latest on Microsoft’s Acquisition of Activision Blizzard
More than a year has passed since then Microsoft (MSFT -0.80%) announced to purchase it Activision Blizzard (ATVI 1.20%) in an all-cash deal valued at $68.7 billion, however the deal remains uncertain. Activision shares are trading about 24% below their purchase price of $95 per share.
Here’s a look at what’s happened since the deal was announced and whether Activision Blizzard is a buy.
A long way to official approval
Fearing antitrust concerns, the market was initially skeptical that regulators would approve Microsoft’s acquisition of Activision Blizzard. Activision’s stock hasn’t more than $82 a share over the past year and traded at just $71 a share.
Activision shareholders overwhelmingly approved the transaction in April 2022, and there have been a number of developments in recent months.
First, in December 2022, the Federal Trade Commission (FTC) formally announced its intention to block the proposed acquisition, raising concerns that it would hurt consumers and give Microsoft too much control over certain parts of the gaming industry.
After the FTC announcement, Microsoft responded by claiming that it was lagging behind its competitors Nintendo And Sony in gaming consoles and has committed to making Activision’s favorite gaming franchise, Call of Duty, available to them for at least 10 years.
In recent weeks, the European Commission (EC) and the The UK Competition and Markets Authority (CMA) has publicly scrutinized the acquisition. The European Commission filed its formal complaint against the acquisition on February 1, citing concerns about reduced competition and innovation. The CMA published its preliminary findings on February 8, noting that the acquisition “could result in higher prices, less choice and less innovation for UK gamers” and less competition in console and cloud gaming.
On the plus side, if the transaction goes through as intended, Chile, Brazil, Saudi Arabia and Serbia have approved the deal.
What’s next?
Microsoft and Activision are currently in court with the FTC, which has led to controversial subpoenas from competitors alphabetNintendo and Sony for Discovery documents.
Regarding the satisfaction of the EC’s formal complaint, concessions to the deal, such as Activision’s sell-off call of Duty Franchising to another buyer could make the transaction easier. In that scenario, Microsoft’s $95-per-share offer is likely to decline, and Activision shareholders could be compensated for the popular franchise in a separate transaction.
Meanwhile, the third regulator, the CMA, is expected to release its full report on April 26, 2023. Australia, Japan and New Zealand are also expected to join the deal but have yet to do so.
Is Activision Blizzard Stock Worth Buying?
As a standalone company, Activision Blizzard’s stock isn’t all that attractive, as its revenue and diluted earnings per share fell about 14% and 37%, respectively, from 2021 to 2022. Longtime CEO Bobby Kotick has also come under scrutiny in the past few years for allegedly harboring a “culture of sexual misconduct,” according to a Wall Street Journal Report.
As a merger arbitrage game — a short-term investment strategy of buying shares in companies trading below cost — the stock remains interesting, with Activision trading 24% below cost. Even Warren Buffett, arguably the most successful investor in the world, gets involved in merger arbitrage. Shortly after the acquisition announcement, Buffett stocked up around 54 million shares in Activision Blizzard Berkshire HathawayThe investment portfolio of .
Berkshire later reduced that position in Q3 2022 and Q4 2022, but the nearly $700 billion holding company still owns over 52 million shares of Activision Blizzard, or about 6.7% of the gaming company.
Although the original transaction appears unlikely to go through as intended, even a modified transaction could produce a beneficial return for investors looking to benefit from merger arbitrage. But if the deal ultimately falls through, Activision Blizzard’s investors should put their controllers down and call it quits.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Collin Brantmeyer has held positions at Activision Blizzard, Alphabet, Berkshire Hathaway, Microsoft and Nintendo. The Motley Fool has positions in and recommends Activision Blizzard, Alphabet, Berkshire Hathaway, and Microsoft. The Motley Fool recommends Nintendo. The Motley Fool has a disclosure policy.