Is it Game Over for Activision Blizzard? 🎮

• Raises the real possibility that the buyout may not go through
• Activision Blizzard had a not-so-positive corporate reputation before the Microsoft deal
• ATVI may earn around $3.89 per share in 2023
• They are capable of attracting an audience that is willing to pay 
• Comforting to know that even if the deal does get completely blocked, Activision Blizzard still looks like it can operate as a profitable standalone business

Activision Blizzard Inc

About a year ago, software titan Microsoft (NASDAQ: MSFT) offered to buy video game maker Activision Blizzard (NASDAQ: ATVI) for $95 per share in cash. Unfortunately for investors, that acquisition may be in jeopardy, as the Federal Trade Commission sued to block the acquisition from completing, citing antitrust concerns.

Early stages of the trial are now underway,  and it may be much later this year before things come to a conclusion. Still, the acerbic nature of the trial (such as an early motion by Microsoft that appeared to question the constitutionality of the Federal Trade Commission) means that the ultimate outcome is unknown. That raises the real possibility that the buyout may not go through -- and the question of what happens to Activision Blizzard if the acquisition falls apart entirely.

Look to before the acquisition was announced for the risks

Back in early 2022, before Microsoft’s plans were made public, Activision Blizzard’s shares traded hands for around $65 each.  It’s reasonable to expect that without the benefit of the buyout, its shares could drop back to somewhere in that neighborhood. Given that its shares recently closed at $77.59, that’s a potential decline around 16%.

However, it’s also possible that things could be worse. Activision Blizzard had a not-so-positive corporate reputation before the Microsoft deal was announced. Whether or not they’re true, allegations of sexual harassment and a lawsuit from a former employee’s family that a hostile work environment led to her suicide are certainly distracting to the company’s operations. If even the allegations are enough to reduce consumers’ willingness to do business with them, it could impede the company’s revenue.

Is an independent Activision Blizzard still viable?

Yet all hope is not lost, even if Microsoft’s acquisition of Activision Blizzard does get blocked. Analysts expect Activision Blizzard to earn around $3.89 per share in 2023. Even with the culture-related risks the company faces, it is still expected to post modest growth over the next few years should it remain an independent company.

Let’s not forget, too, the reason why Microsoft wants to buy Activision Blizzard in the first place: its game library. With popular titles like Overwatch, World of Warcraft, Candy Crush, and Call of Duty, Activision Blizzard has shown itself capable of attracting an audience that is willing to pay for the type of entertainment that the company can provide.

Put it all together, and Activision Blizzard certainly looks capable of holding its own if the Microsoft deal falls through. With its stock price hovering between the pre-announcement price and the deal price, the market is unsure what the outcome of Microsoft’s court battle with the FTC over the acquisition will be. That uncertainty about the acquisition makes it comforting to know that Activision Blizzard looks capable of making it on its own, if that’s what it comes down to.

So - will the acquisition fall apart?

Ultimately, whether or not Microsoft is able to complete its purchase of Activision Blizzard depends on the outcome of its FTC court battle. The range of possible outcomes goes from “yes - go ahead, no restrictions” to “absolutely not”, with some sort of conditional approval somewhere in the middle.

Those conditional approvals are how these things often wind up. For instance, when Walgreens Boots Alliance (NYSE: WBA) attempted to buy Rite Aid (NYSE: RAD), the final deal ended up with Walgreens Boots Alliance owning many of the former Rite Aid stores  In this case, it may end up with Microsoft only getting part of Activision Blizzard’s library or being required to keep the existing Activision Blizzard portfolio available on other gaming platforms.

Until the court case is resolved, however, your guess on how it ends is at least as good as mine is. From an investor’s perspective, however, it is comforting to know that even if the deal does get completely blocked, Activision Blizzard still looks like it can operate as a profitable standalone business.

At the time of publication, Chuck Saletta owned shares of Microsoft.

Activision Blizzard Inc

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Sources – EasyResearch, Microsoft, CNBC, Reuters, Axios, Ars Technica, Yahoo Finance, Time, The Washington Post, New York Times, Dot Esports