Activision Blizzard $ATVI stock dropped last week, although a day of gains for the overall market due to the litigation from the Federal Trade Commission (FTC) against Microsoft's acquisition of the gaming publisher.
The FTC said that approving the proposed $68.7 billion takeover would harm the video game industry's competitive environment and allow $MSFT to strangle its rivals in the market in its recently disclosed complaint. Activision Blizzard's stock performance will probably continue to be influenced by events on the regulatory front in the near future. The agency has filed a lawsuit in an administrative court to halt the acquisition.
Although the purchase is still possible, I wouldn't invest in Activision's stock just because it might increase to $95 if the deal is approved. Its downside might be limited at these prices, but the video game industry may be unpopular for some time. In this down market, there are also a ton of other potential tech stocks to pick from.
Microsoft won't just walk away from this agreement. Activision recently agreed to a 10-year distribution contract for Call of Duty with Nintendo and made a similar offer to Sony as proof that it wouldn't make its most popular titles Xbox and Windows exclusives. $ATVI might seem like a good buy at $76, but if Microsoft withdraws, it might be difficult for the company to gain nearly 30% to $95 on its own. Instead of placing a bet on Activision's long-term recovery, it could make more sense to invest in $MSFT, which runs a more diverse business and trades at around 26 times forward profits.
Even if Microsoft and Activision Blizzard win their legal battle with the agency, the transaction may not be completed in the first half of 2023 as planned because it still needs permission from European and British regulators. Nevertheless, $ATVI growth prospects remain bright, and a buy is reasonable at the current share price levels.
Source: Yahoo Finance