Politico reports that the Federal Trade Commission will likely block Microsoft’s acquisition of Activision Blizzard.
ATVI stock dropped 4% on the news late Wednesday.
Microsoft had offered $95 a share for Activision Blizzard back in January.
If the buyout gets blocked, expect Activision Blizzard stock to sink to $57.
Activision Blizzard (ATVI) stock promptly lost 4% in Wednesday’s afterhours trade after a story in Politico claimed that officials at the Federal Trade Commission (FTC) were skeptical of Microsoft’s (MSFT) argument that its planned takeover of the video game designer would not produce monopoly power in the gaming industry.
Politico reported on Wednesday that three unnamed officials at the Federal Trade Commission confirmed that an antitrust lawsuit was likely to be filed against Microsoft in short order. Microsoft offered $95 a share ($68.7 billion) for Activision Blizzard all the way back in January. By acquiring the video game maker of titles such as Call of Duty and Candy Crush, Microsoft would become a vertically-integrated video game industry leader like no one else in the market.
Currently, Microsoft’s XBox console is ranked third worldwide but first in the United States with a 53% market share. Sony’s Playstation console is ranked first with Nintendo in second place.
Sony (NYSE: SONY) has complained vociferously that Activision Blizzard is too important a content maker to be gobbled up by Microsoft. Sony leadership has argued that the acquisition could lead the version of Call of Duty made for Playstation to be subpar or that Microsoft could even limit its top titles to XBox only. Microsoft has countered that it would continue to produce Call of Duty updates for the Playstation console, and a New York Times article says executives offered Sony a 10-year promise to keep the game available. That 10-year time horizon makes it appear likely that Microsoft would eventually keep some titles for XBox only.
The Federal Trade Commission has been carrying out diligence on the acquisition for months. Officials said that depositions for both Microsoft CEO Satya Nadella and Activision Blizzard CEO Bobby Kotick had been completed. The United Kingdom’s Competition & Markets Authority has already been perceived as skeptical of the deal. Sony told the UK regulator that an acquisition 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 by the smallest of the three console competitors, Xbox, as a result of losing access to one title, is not credible.”
Federal Trade Commission Chair Lina Khan has a reputation for more heavily scrutinizing mergers and acquisitions compared to her light-handed predecessors. It may help, however, that Alphabet (GOOGL) has also signaled opposition to the deal. Alphabet has said that 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 disclosed just last week that it had sold about 8 million shares of its ATVI stock position during the third quarter, though it still owned about 60 million shares left. At its height, Berkshire Hathaway (BRK-B) owned as much as 9.5% of the firm.
Activision Blizzard stock has already been selling off for most of the year since the acquisition announcement back in January. At that time, ATVI stock shot up from $65 to near $88. Since then it has lagged quite a bit. The weekly chart below shows that it found support between $71 and $72. November, however, has seen ATVI shares move back above $75.
Many traders, including Berkshire Hathaway, have simply been holding onto the stock in the hopes that the deal will close at $95. Now that this recent news seems to offer a different future, expect the market to begin dumping shares on November 24 and then again next week. Friday may turn out to be a true Black Friday then for current ATVI shareholders, especially if the likes of Berkshire Hathaway begin dumping positions hard.
In that case, 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 the closing price on Wednesday. The share price may remain in between for a while though, while some wishful thinkers hope the deal still goes through at $95. The graph at the bottom of the chart shows the Accumulation/Distribution line falling from even before the January announcement from 3.6 billion shares to below 3.2 billion shares. Sure seems faith in the Microsoft deal has been losing steam for some time.
This share price tanking scenario seems all the more likely as ATVI stock has been trading at quite a premium. Currently, ATVI stock is valued at more than 8 times TTM revenue, while Take-Two Interactive Software (TTWO), the maker of Grand Theft Auto, sells for just under five times revenue.
ATVI weekly chart