Activision Risk-reward Strategy Microsoft Agreement Uncertain: To paraphrase, (Bloomberg) In the eyes of Activision Blizzard Inc. watchers, it’s almost as if the video game publisher never agreed to sell itself to Microsoft Corp. for $69 billion.
Wall Street brokerages have been growing more bullish on Activision’s solo chances as investors have been increasingly skeptical that the transaction would escape antitrust investigation. Their 12-month average price forecast of $92.17 is nearly equal to their prediction of $91.95 on January 17 (the day before Microsoft’s shocking purchase news).
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- Microsoft Activision: The FTC May Halt the $69 Billion Merger Deal
- Microsoft-Activision Merger: European Union Replies To Anti-Competitive Claims
Will the Activision-Microsoft deal go through? Today, Activision shareholders will vote on the acquisition. Then it faces a newly empowered FTC.
With Activision shares trading 25% below Microsoft's offer, Wall Street certainly believes the deal will fail: https://t.co/j3begJvMVu
— Jason Schreier (@jasonschreier) April 28, 2022
Activision Risk-reward Strategy Microsoft Agreement Uncertain
In Monday’s trading, Activision’s stock increased by 1.2% while Microsoft’s fell by 0.7%. After trading as high as $75.76 on Friday, should Microsoft’s $95 per share cash offer fail, arbitragers expect the stock to fall to around $60, where it was trading before the bid, according to Aaron Glick, a merger-arb specialist at Cowen & Co. This may not be the case for very long.
Optimism in the future of its Call of Duty and World of Warcraft brands has led analysts to increase their profit forecasts over the past month. If the deal is finalized, shares would increase by more than 20%.
Ralph Rocco, portfolio manager at Gabelli Funds, which owns Activision shares, said, “You can see why people would see this as a good risk/reward, with or without a transaction.” If the merger goes through, we see low fundamental risk and a fair degree of potential reward.
Activision’s share price has fallen from the low $80s to the mid $70s since the purchase announcement in January. There will be extensive antitrust investigations in the European Union and the United Kingdom into the deal, as well as increased scrutiny from the Federal Trade Commission in the United States, which, according to Politico, is expected to file a lawsuit to prevent the sale.
Read more:-
- Microsoft-Activision Deal Antitrust Investigation By EU
- Elder Scrolls Vi Will Be a Console Exclusive Unlike Call of Duty, Microsoft Has Confirmed
Bloomberg News reported late on Friday that a source close to the situation confirmed Microsoft’s readiness to oppose any legal action taken by the United States to prevent the transaction. Microsoft has declined to comment on the possibility of an FTC litigation, despite the company’s stated intention to finalize the purchase by June 30. The New York Post also stated that disagreements within the FTC are helping to push the deal along.
The premium for acquiring a company is low. Investors valued Activision at an average of 23 times anticipated earnings in the five years prior to the acquisition, however, this multiple had declined to 16.8 just before Microsoft’s entry. The current price of Activision shares is 20 times earnings.
Market participants currently assign a closure probability of the deal of between 35% to 40%. Cowen’s Glick warned that “if it breaks apart, some event-driven traders will have to decrease or abandon their positions,” which could lead to selling pressure that drives the stock price below investors’ fair value estimates. According to him, “fair value and where anything trades owing to technical dislocation” are not the same thing.
Wells Fargo Securities was one of at least six analysts that gave ATVI a buy rating in November, arguing that the market “is undervaluing ATVI relative to both possibilities (deal or no deal).” Researcher Brian Fitzgerald praised Activision’s many IPs, large PC player base, and potential for expansion in mobile gaming.
Activision’s #shares fell on Friday after it was reported that the Federal Trade Commission may file an antitrust lawsuit to prevent Microsoft’s takeover of Activision.#MSFT #ATVI #Microsoft #ActivisionBlizzad #MarketUpdate #GlobalMarkets #Acquisition #CenturyFinancial pic.twitter.com/pW7UDmGdYp
— Century Financial (@Century_Fin) November 28, 2022
Trust Securities agreed, stating that Activision “should have a huge 2023” because of its promising lineup of upcoming games.
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More and more stocks in the Nasdaq 100 Index are trading above their 200-day moving average as a result of the index’s recent increases. By Friday’s close, nearly as many as 55% of stocks in the benchmark were trading above this key level, putting them near their highest point since early January.
At the end of September, only 8% of components were trading at or above their 200-day moving average. If the index as a whole is to close above its 200-day moving average, where it hasn’t been since April, a climb of around 4.5% is required.
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