Activision Blizzard: what will happen to the stock if the Microsoft deal falls through?

Activision Blizzard (NASDAQ:) shareholders are a little nervous these days. The rallying momentum that began earlier this year after Microsoft (NASDAQ:) announced its intention to acquire the games publisher in a cash offer is waning as regulators could still ban the cash deal.

A sign of this uncertainty is the widening gap between Activision’s current stock price and Microsoft’s cash offer of $95 per share, also known as merger arbitrage. At $73.51, Wednesday’s spread was 23%, significantly higher than the 8% on January 18 when the deal was announced.

Daily chart ATVI (blue), MSFT (purple)

Merger arbitration has widened in recent days as reports have emerged that the United States and Europe will scrutinize the proposed deal, which at a cost of around $69 billion , will be the biggest takeover ever by technology. Represents the giant Microsoft.

Politico reported last week that the Federal Trade Commission is likely to file an antitrust complaint as early as next month, alleging the merger would give Microsoft an unfair advantage in the video game market. The two companies expect to close the deal in the first half of 2023.

The acquisition of Activision, which owns some of the most popular game series like Call of Duty and World of Warcraft, will help the software giant expand its Xbox console offering and tap into the fast-growing mobile and gaming markets. of the Metaverse.

According to Politico, Sony Interactive Entertainment (TYO:) (NYSE:) became the main opponent of the acquisition, telling the FTC and regulators in other countries that Sony would be at a significant disadvantage if Microsoft offered hit games like Call of Duty exclusively through its platforms would.

European Union competition watchdogs said earlier this month they would closely investigate the deal to see if it could harm competition in the video game industry.

40% chance

This situation translates into an attractive risk-opportunity ratio for investors. If the merger does not receive regulatory approval, it risks further weakening Activision’s stock. However, if the deal goes through, they could see a significant return based on today’s ATVI price.

Aaron Glick, a merger arbitrage specialist at Cowen & Co., explained in a Bloomberg report that the market is pricing a trade’s chance of success at around 40%, assuming the stock is trading at 60. $ on failure.

While it’s hard to predict how this will play out due to regulatory uncertainties, owning Activision stock isn’t a bad idea anyway. The company is in a period of strong growth, so it is worth keeping the stock in a long-term portfolio even if Activision remains independent.

Activision’s net bookings for mobile platforms were up 20% year over year in the third quarter due to the strong popularity of games like Candy Crush and Diablo Immortal.

Additionally, Antivision is bringing players a host of new releases this quarter, including the recent Call of Duty: Modern Warfare II. The latter title was a smash hit, grossing over $1 billion in its first 10 days of release – more than any other game in the hugely successful series.

In a survey on, 26 analysts give Activision a “Buy” rating due to its dominance in the gaming space. The 12-month consensus target implies 25% upside potential.

ATVI Consensus Estimates


As Morgan Stanley moved Activision Blizzard shares from Equal Weight to Overweight, the bank said it saw a compelling risk-reward trade-off. The note goes on to say:

“While it is difficult to assess the likelihood that the proposed acquisition of MSFT will be approved by regulators, we believe the risk/reward trade-off for the entirely separate entity is compelling…with an option to purchase of $95 per share in cash if and when the deal with MSFT closes.”

MKM also upgraded Activision to buy from breakeven, saying the current stock price does not reflect the company’s fundamental improvements and strong growth potential for 2023.


Even if MSFT does not approve of the proposed acquisition, Activision should not suffer too much. The gaming company is in fairly good shape to offer investors attractive returns even as the company continues to operate independently.

Disclosure: Haris Anwar does not currently own any Microsoft stock. The opinions expressed in this article are those of the author and should not be construed as investment advice.

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