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Why Activision Blizzard Stock Popped This Week

The Motley Fool
The Motley Fool
 2022-01-21

What happened

Unless you've been disconnected this week, you might have heard about Microsoft 's (NASDAQ: MSFT) $68.7 billion all-cash deal to buy Activision Blizzard (NASDAQ: ATVI) at $95 per share. Shares of Activision were up 25.2% week to date as of 9:55 a.m. ET on Friday, according to data provided by S&P Global Market Intelligence .

However, at Activision's current share price of $81.91, investors are placing an implied probability of 55% that the deal gets approval from regulatory bodies. If approved, the deal would make Microsoft the third-largest video game company in the world behind Tencent Holdings and Sony . It would have huge implications on Microsoft's future in the metaverse, cloud gaming, esports, and mobile-gaming ambitions.

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Image source: Getty Images.

So what

Microsoft and Activision will have plenty of time to get their lawyers together to make their case in front of U.S. regulators. The deal isn't expected to close until sometime during Microsoft's fiscal 2023 (which runs through June each year).

Sony is viewed as the big loser here, and the PlayStation operator may try to block the deal, since Microsoft would likely pull the best-selling Call of Duty title from PlayStation and keep it exclusively for its Xbox game system.

Remember, Microsoft has a history of raising alarm bells at the Federal Trade Commission going back to the 1990s. It will take a while to iron out the details of if, when, and how the largest deal in video game history -- Microsoft's, too -- gets completed.

Now what

To the point of antitrust concerns, Microsoft is arguing that it needs Activision in order to remain competitive.

During a conference call with analysts, CEO Satya Nadella said: "Today, we face strong global competition from companies that generate more revenue from game distribution than we do from our share of game sales and subscriptions. We need more innovation and investment in content creation and fewer constraints on distribution."

On that note, Activision Blizzard CEO Bobby Kotick cited investments in cloud computing, artificial intelligence, and machine learning as reasons why Microsoft is the right partner at a time when so much is at stake in the video game industry, and especially with every FAANG stock investing in gaming.

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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. John Ballard owns Activision Blizzard and Microsoft. The Motley Fool owns and recommends Activision Blizzard, Microsoft, and Tencent Holdings. The Motley Fool has a disclosure policy .

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