- Politico reports that the Federal Trade Commission will likely block Microsoft’s acquisition of Activision Blizzard.
- ATVI shares fell 4% on late Wednesday news.
- Microsoft had offered $95 a share for Activision Blizzard in January.
- If the acquisition is stalled, expect Activision Blizzard shares to drop to $57.
Activision Blizzard (ATVI) Stocks immediately lost 4% in after-hours trading Wednesday after an article in Politico said Federal Trade Commission (FTC) officials were skeptical of the Microsoft (MSFT) argument that his planned takeover of the video game designer would not yield monopoly power in the gaming industry.
Activision Blizzard Stock News: FTC Lawsuit Might Be Imminent
Politico reported Wednesday that three unnamed Federal Trade Commission officials confirmed that an antitrust lawsuit was likely to be filed against Microsoft shortly. Microsoft offered $95 a share ($68.7 billion) for Activision Blizzard in January. By acquiring the video game maker of titles like Call of Duty and Candy Crush, Microsoft would become a vertically integrated gaming industry leader like no other in the market.
Currently, Microsoft’s XBox console ranks third globally but first in the US with 53% market share. Sony’s Playstation console takes first place with Nintendo in second place.
Sony (New York Stock Exchange: SONY) has loudly complained that Activision Blizzard is too big a content producer to be swallowed by Microsoft. Sony’s leadership has argued that the acquisition could lead to the Playstation version of Call of Duty being substandard, or that Microsoft could even limit its flagship titles to just the XBox. Microsoft countered that it would continue making Call of Duty updates for the Playstation console, and a New York Times article claims executives offered Sony a 10-year promise to keep the game available. That 10-year time horizon makes it seem likely that Microsoft will eventually keep some XBox-only titles.
The Federal Trade Commission conducted months of due diligence on the acquisition. Officials said depositions for both Microsoft CEO Satya Nadella and Activision Blizzard CEO Bobby Kotick had been completed. The UK’s Competition & Markets Authority has already been perceived as skeptical of the deal. Sony told the UK regulator that a takeover would give consumers fewer options and less competitive prices.
Microsoft responded to Sony’s statement, saying, “The suggestion that the incumbent market leader, Sony, with clear and enduring market power, could be foreclosed on by the smallest of the three console competitors, Xbox, due to loss of access to a title, is not credible”.
Federal Trade Commission Chair Lina Khan has a reputation for scrutinizing mergers and acquisitions more closely than her light-handed predecessors. She can help, however, that Alphabet (GOOGL) he also signaled opposition to the deal. Alphabet said Microsoft has already shown its true colors by reducing the quality of Google’s Game Pass subscription service when users use a Google Chrome browser.
Warren Buffet’s Berkshire Hathaway revealed just last week that it sold about 8 million shares of its ATVI stock position during the third quarter, although it still had about 60 million shares left. At its peak, Berkshire Hathaway (BRK-B) owned up to 9.5% of the company.
Activision Blizzard stock forecast
Activision Blizzard’s stock has already been sold off for most of the year since the acquisition announcement in January. At that time, ATVI stock soared from $65 to nearly $88. It has lagged significantly since then. The weekly chart below shows that it has found support between $71 and $72. November, however, saw ATVI shares move back above $75.
Many traders, including Berkshire Hathaway, simply held the stock in hopes that the deal would close at $95. Now that these recent news appear to be offering a different future, expect the market to start dumping stocks on Nov. 24 and then again next week. Friday could prove to be Black Friday for current ATVI shareholders, especially if the likes of Berkshire Hathaway begin unloading positions.
If so, expect ATVI stock to move hard through support levels. The pre-acquisition share price for ATVI found support near $57 in December 2021, a full 25% lower than Wednesday’s closing price. However, the share price could hang in the middle for a while as some optimists hope the deal still goes through at $95. The graph at the bottom of the chart shows the Accumulation/Distribution line falling from before the January announcement from 3.6 billion shares to less than 3.2 billion shares. It certainly appears that faith in the Microsoft deal has long since faded.
This stock price tanking scenario seems all the more likely as ATVI stock has been trading at a fairly high price. Currently, ATVI shares are valued at over 8 times TTM revenue, while Take-Two Interactive Software (TTWO)the creator of Grand Theft Auto, sells for just under five times the revenue.
ATVI weekly chart