Microsoft has said it plans to release Activision’s Call of Duty videogames on Sony’s PlayStation.
Rich Polk/Getty Images for Activision
Activision Blizzard stock continues to trade at a steep discount to what Microsoft has agreed to pay for the company, but an analyst at MoffettNathanson thinks that could soon change.
Analyst Clay Griffin upgraded Activision (ticker: ATVI) stock to Outperform, maintaining a target of $95—the amount per share Microsoft intends to pay in its all-cash nearly $69 billion deal for the videogame company. But including a gain of 0.5% to $79.65 on Monday, the shares remain 19% below that level.
“Though we’d push back on the notion that Microsoft will be closing on Activision any day now, we do see strong rationale for why it ultimately should,” Griffin wrote. “With still a [nearly 20%] discount to the deal price, Activision shares represent an uncorrelated market opportunity that, in our view, is worth an upgrade.”
Activision stock has traded well below the deal price since the transaction was announced in January, as investors worried that the Biden administration might take it as an opportunity to rein in big tech. Microsoft has said it is confident the deal will close in the fiscal year ending June 2023. Barron’s argued this month that fears the deal will be derailed seemed overblown.
A combined Microsoft and Activision Blizzard wouldn’t have a dominant stake in the $192.7 billion global games market. Microsoft has already said it plans to release Activision’s popular Call of Duty games on Sony ’s (SONY) PlayStation consoles.
“We continue to believe that the deal should be approved,” Griffin wrote. “It’s difficult for us to see how the transaction could inexorably alter the competitive landscape in the video game market.”
The analyst noted that the companies disclosed in March that they received a second request for information from the Federal Trade Commission. Microsoft declined to comment when asked if it has responded to the request. An Activision Blizzard representative didn’t respond to an inquiry from Barron’s. Historically, both companies complying with such a request would set a 30-day timer for the FTC to decide whether it wanted to sue to block the deal, though recent guidance from the agency warns it can still sue to challenge deals outside of that window if it determines a deal violates the law.
Griffin suggested that the radio silence since March suggests that there is “probably some back-and-forth and a good-faith effort on Microsoft/Activision’s part to address concerns the commission has.”
“No one ever had the expectation that the FTC would give this deal a once-over and waive it in,” Griffin said. “No, we don’t think the timing of resolution is necessarily imminent. But it’s not wrong to suggest that the Microsoft-Activision deal is entering its final stage.”
If that is the case, Activision stock offers an attractive potential return at an uncertain time for markets.
Write to Connor Smith at [email protected]
