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Investors seem to have little faith in Microsoft succeeding with its plan of acquiring Call of Duty maker Activision Blizzard. Shares were trading 25% below Microsoft’s offer ahead of today’s vote by stockholders, and while the proposal has since been approved, a majority of Wall Street remains bothered by the risks surrounding the buyout. It’s believed that federal antitrust enforcers could block the acquisition, one that also requires approval by governments from around the world.

Wall Street Is Betting That Microsoft-Activision Deal Will Fail (Bloomberg)

Shares of the gaming juggernaut are trading 25% below Microsoft’s $95 offer, indicating investors see risk the buyout won’t close as planned. This risk premium is more than double that of Twitter Inc. following Elon Musk’s offer, and higher than most of the announced — but still pending — deals tracked by Bloomberg.

Tough-talk from President Joe Biden’s antitrust enforcers is fueling investor fears that the deal could be blocked or subject to delays even if it prevails, said Matt Perault of New Street Research. Plus, the deal will also need approval by other governments including the European Union and China.

The merger, which has until June 2023 to close, would make Microsoft the world’s No. 3 gaming company, and would give it ownership over two of the most recognizable gaming brands on the planet in Call of Duty and World of Warcraft. Microsoft would also gain control of Candy Crush developer King, which made $2.58 billion in revenue last year.

Microsoft sent shockwaves through the game industry when it announced that it had agreed to acquire Activision Blizzard in January. If successful, the deal would shift Activision Publishing, Blizzard Entertainment, Infinity Ward, King, Raven Software, Sledgehammer Games, Treyarch, and more under the interests of Xbox, although select franchises, such as Call of Duty, will continue to be released on PlayStation and other competing platforms.

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2 comments

  1. What doe MS care about the risks. If it's approved they have the cash the deal can be done. As long as they reasonably believe it will lead to further profit for shareholders I don't see the issue. It's in their interest to see the stock go down and not speak to speculation.
  2. MS is publicly traded. Wall Street obviously thinks it's a bad idea. The MS board / shareholders get to vote on it, regardless of what Wall Street thinks; but Wall Street remains the ultimate arbiter. If Wall Street continues to think it's a bad idea, they will start hammering MS stocks, which results in less value to shareholders - which is exactly the opposite of what MS is obligated to do: increase shareholder value.

    The value of A/B's stock right now is mostly immaterial. Usually in a buyout, the offer is already on the table, if the "being purchased" stock tanks between now and then, it won't really affect the buyout price to the "being purchased" shareholders.. it just results in lower value to the buyer -- the current A/B stocks all get bought out and they just go away. The value of that is then to be reflected in MS stock price; if Wall Street likes it, that price goes up and MS gains the value of that purchase, and if it works out like you hope, your stock value went up by more than the purchase amount and that pretty much covers the purchase. If Wall Street thinks you just royally F'ed up, your stock price could also go down, and you just got double whammied -- not only did you pay out for that purchase, but you also just lost a lot of your stock price on top of that, so you essentially get to pay twice for a bad idea.

    Now, I'm speaking of Wall Street like it's a unified decision-making body. It absolutely isn't -- it's entirely irrational and driven highly by emotion on a good day. But it absolutely does determine what publicly traded companies do, as little sense as that makes most of the time. And I'm also speaking about stock prices like the value is static; they are always to be considered over time; even if the post-purchase price goes down immediately, if MS does some brilliant things with the new acquisition, they could be rewarded over time - and shareholders will obviously consider that when they cast their votes.

    And if MS does back out of the deal - there is almost always some sort of cooling off... MS can't drive this into "obviously bad idea" territory just to tank the A/B stock price, cancel the deal, then swoop back in and take advantage of the new lower stock price. Other parties; however, can, so long as they did not collude with Microsoft for the purpose of taking advantage of that. But if the deal gets ganked from Microsoft, I don't know that many other buyers would necessarily be lining up; there's not been a lot of positive news coming from A/B lately to make me think it's a good investment as an operating company. It has a lot of high value wrapped up in some old IPs, but that's not the same thing as if they were shipping huge hit titles year after year. They've spent a long time coasting on some older good games and what amounts to the annual rehash of CoD, and seem to have whiffed on eSports.

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