Activision Blizzard Inventory: Purchase On Antitrust Weak point, Make An Straightforward Revenue (ATVI)
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activity (NASDAQ:ATVI) is currently trading at a 14% discount to Microsoft’s offering (NASDAQ:MSFT) due to antitrust concerns. While the deal doesn’t appear to pose any problems from a market share perspective, antitrust regulators, namely the Federal Trade Commission and the Department of Justice, want to see what impact big-tech M&A deals can have on their ancillary services.
Let’s look at the deal
The acquisition is priced at $95.00 per share, which is the average price during the period ended June 21, about 9% lower than 12-month highs, but at a +45% premium from last week’s close.
Numbers aside, however, the deal would create a truly global competitor for Tencent (OTCPK:TCEHY) in a sector where Asian competition is ahead of the US. We believe the geopolitical benefit of this deal will outweigh any reservations the FTC or DOJ may have. Should the deal go through, and we expect Microsoft to be the third largest gaming company in terms of net bookings, but more importantly, it will be able to compete with the industry’s two giants: Tencent and Sony (NYSE:SONY).
It’s also worth noting Microsoft’s relatively clean record with antitrust authorities when they recently cracked down on tech giants (we say relatively, since some of our more seasoned readers will remember the late 1990s). This is thanks to Microsoft’s relatively small presence in the social media universe. Microsoft only has LinkedIn in its social media portfolio, though it narrowly missed acquiring TikTok, much to the satisfaction of one Bill Gates, who called social media “a chalice of poison.”
Social media and consumer-facing internet platforms are excellent machines for collecting personal data and then analyzing and targeting it. With that, antitrust authorities have broadened the scope of their scrutiny as concerns grow about how these companies are exploiting their massive presence across a range of platforms and business sectors. While this isn’t an issue in terms of market share, it could create an advantage for their own companies.
But also for this reason we see the acquisition as a major US competitor in the gaming industry.
We remain neutral on Activision with a price target of $95.00. We’d buy on any antitrust weakness to take home an easy profit before the deal theoretically closes in 2023.
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