Is it “game over” for Microsoft's Activision acquisition?
By Paul Reid
17 February 2023
When two hugely successful companies join forces, the initial stock market response is not always a bullish one, and traders who follow company mergers and takeovers know the only thing to count on is volatility. But what about the long run? Should traders buy in early and wait for the big picture to move the markets?
What’s happened so far?
Microsoft (MSFT) made headlines in January after announcing a hefty $69 billion bid to acquire Activision Blizzard (ATVI), the largest video game developer of all time. The acquisition is Microsoft's biggest ever.
Despite the huge number, this isn't necessarily a crazy bet for Microsoft. Gaming was already a booming business before the pandemic, and lockdowns further increased its appeal.
Estimates put gaming revenue increases at over 20% in recent years, approaching a staggering $200 billion, which has attracted the attention of tech giants such as Apple, Netflix, Amazon, and, of course, Microsoft.
Traders have already seen movement on the charts since the announcement, but the deal isn’t done just yet, as competitor Sony raised concerns about the monopolization of the industry. This brings the UK's regulatory commission, Competition and Markets Authority (CMA), into play.
What the CMA says about Microsoft’s acquisition
The CMA is expected to announce its provisional findings soon, which could either clear the way for the mega-deal, or put an unappealable halt to it.
The CMA has expressed concerns that the takeover could lead to competition issues in the console and subscription market, as well as in the growing cloud gaming sector.
Microsoft's goal in acquiring Activision Blizzard is to add popular games like Call of Duty to its portfolio, which already includes the Halo franchise and Minecraft.
Regulators around the world are worried that Microsoft dominance may soon make it harder for rivals to access Activision's popular titles. The CMA's decision is significant, as UK courts rarely overturn CMA merger decisions, and if the deal is blocked, there is little recourse for Microsoft and Activision.
The CMA's ruling will come before decisions from the EU and the US Federal Trade Commission, which has sued to veto the transaction.
In the hopes of greasing the wheels, Microsoft offered to grant a 10-year license for Call of Duty to its rival Sony. But that doesn’t address the issue that all upcoming Activision titles may become XBOX exclusives, leaving Sony’s PS5 catching dust in the corner.
If Microsoft’s Activision acquisition goes through, MSFT stocks probably won’t make much movement. Even though the purchase is $69 Billion, the effect on the company's profitability won’t be seen anytime soon—if ever.
In contrast, Activision stock soared by 25% after the acquisition was announced.
If the deal is blocked, we may see those early investors pulling out, and a rather rapid correction for ATVI. Don’t forget, last year the CMA concluded that Meta's purchase of GIPHY would limit choice for social media users, and Meta was ordered to sell GIPHY, so it’s not such a stretch to imagine the deal getting canceled.
MSFT is an amazing company to trade either way, but consider focusing your research and analysis on ATVI in the coming weeks and months and be ready for the CMA decision.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.
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