On June 22, a federal judge began hearing arguments surrounding Microsoft’s planned $69 billion acquisition of Activision. Regulators are seeking to block the deal, saying it would give Microsoft too much control over how consumers access Activision’s games, which are currently available on other platforms.
Sony Corp. (NYSE: SNE), which makes the PlayStation line of game consoles, which compete with Microsoft’s Xbox series of consoles, has filed complaints with the Federal Trade Commission to stop the Activision Microsoft deal.
Missteps in Court
According to reports from courtroom observers, both Sony and the FTC had some missteps during the proceedings. For example, an email from the PlayStation division CEO Jim Ryan indicated that he was not particularly concerned that Microsoft was attempting to lock up all Activision’s content, which is popular on the Sony platform. That undercuts Sony’s argument.
In addition, observers said that FTC attorneys seemed largely unfamiliar with the gaming industry, asking irrelevant questions and not making a particularly strong case.
If the FTC prevails in court, the likelihood of the deal proceeding by the July 18 deadline will diminish. The acquisition has already been questioned since the U.K.'s Competition and Markets Authority blocked it in April.
FTC Scrutinizing More Deals
You can see on a stock’s chart when investors are skeptical that a deal will go through.
For example, Pfizer said it would purchase Seagen for $229 per share in March. The Seagen chart shows the stock gapping up on news of the deal, but it never rallied as high as $229, indicating that big investors were holding back.
Seagen stock has been trading below $200 since mid-May, when it gapped down 5.97%. Shares fell on news that the FTC was suing to block an altogether different acquisition, the Amgen Inc. (NASDAQ: AMGN) deal to acquire Horizon Therapeutics Plc (NASDAQ: HZNP).
Awaiting Regulators' Decision
Horizon, like Seagen, is forming a flat base, although shares of both companies are trading in a tight range while investors sit tight, awaiting regulators’ decision.
You can see how Qualtrics has been trading in an extremely tight sideways range since March, after the company said private equity firm Silver Lake was acquiring all its shares. Qualtrics’ share price hovers at $18.15, the agreed-upon acquisition price.
That’s an example of a deal that will likely go through — that’s why the stock is not buyable at this point. There’s no more room for it to run.
Stocks Gap Higher on Excitement
When a stock is being acquired, there’s typically a gap higher, reflecting the initial excitement and positive sentiment surrounding the deal. That’s exactly what happened on the Qualtrics chart.
Subsequently, its chart may stabilize and exhibit a period of consolidation as investors assess the potential outcome of the acquisition.
During this phase, the price movements may be more range-bound, reflecting a cautious approach by market participants and the acknowledgment that there's no further upside to realize.
Finally, as the acquisition nears completion, the stock's chart may show a steady upward trend, approaching the acquisition price, indicating investor confidence in the deal's successful closure.
The Deal Could Be Scuttled
However, there’s also the possibility that the deal will be scuttled, and you can clearly see those sentiments expressed on the Seagen chart and the Horizon Therapeutics chart.
Activision Blizzard’s chart did some of those things. If you set the view to include January 2022, you can see a gap higher on the news in the bout of initial excitement.
However, as doubts increased, the stock was less range-bound and actually formed a lengthy cup-with-handle base. That doesn’t happen if big investors are reasonably confident the transaction will be completed.
Price Still Below $95
Microsoft said it would acquire Activision Blizzard for approximately $95 per share, but the stock’s price hasn’t risen to that level since July 2021, months before the announced deal.
So is Activision currently buyable, given that investors have once again expressed some optimism?
Potentially, but there’s still plenty of reason to believe that the deal could be blocked. Any investors purchasing the stock at this juncture must be aware that their buy would be speculative, as the stock could certainly gap lower if regulators get their way.
In addition, the company continues to release games with tremendous potential, meaning the company has a solid revenue stream even if the Microsoft transaction is blocked.