Regulators are on high alert following Microsoft’s (NASDAQ: MSFT) planned $66.7 billion acquisition of Activision-Blizzard (NASDAQ: ATVI). The merger, which would have made Microsoft the third-largest gaming corporation in the world, spurred inquiries from the FTC, UK CMA, and the European Commission concerning the concentration of power in big tech.
In 2021, Activision found itself in a bind and was the target of many investigations for, among other things, wrongful termination, sexual harassment, and employment discrimination. The corporation needed a new beginning since the leadership and the workforce no longer trusted CEO Bobby Kotick.
Antitrust Issues
Due to antitrust concerns, Microsoft and Activision-Blizzard are engaged in a three-front struggle with western authorities. Regulators fear that increasing the amount of control held by the owner of Xbox will impede competition in the gaming sector.
As a result, the FTC has filed a lawsuit to stop the transaction, and the UK CMA and European Commission are looking into it to see whether there are any antitrust issues.
The dominant position of the Call of Duty brand and regulators’ concerns that the game would become an Xbox exclusive or that Microsoft might degrade the Call of Duty experience for PlayStation and Nintendo gamers are the main issues.
While Microsoft is eager to complete the transaction, they could lose interest if authorities object to selling Call of Duty, Activision’s flagship game.
Microsoft, on the other hand, asserts that they do not intend to restrict Call of Duty to the Xbox, and they have given formal assurances to Sony and Nintendo that Call of Duty will be accessible on their systems.
Regulators still keep hammering home the point that Microsoft would have too much control in the market if it owned Call of Duty.
Due to the tough anti-monopoly attitudes adopted by the Biden administration’s regulators, Wall Street is wagering that Microsoft will need to make major concessions to regulators if the purchase is to ever go through.
Activision’s current pricing and the transaction price are pretty far off. Activision stock is already selling at a significant 26% discount to the $95 purchase price, which is quite rare for a cordial transaction supported by a blue-chip buyer like Microsoft. Western governments, however, are vocal about their opposition to the concentration of power in the high tech sector.
The One Question to Ask When Making the Right Trade
However, the ultimate choice to make the deal should be based on simple standards.
The sole hurdle, if information about the transaction is accurate, is regulator interference. Therefore, Microsoft needs to reach independent deals with the US, UK, and EU.
By making the decision simpler, the most crucial elements of the offer analysis come to the fore.
We can assess the merits of the legal arguments in light of prior legal decisions and consider variables like the success rate of previous antitrust lawsuits.
Although these are straightforward inquiries, the right answers need for in-depth research.
To sum up
The deal’s completion would strengthen Microsoft’s standing as a gaming superpower, which would worry players and regulators.
The conclusion of the transaction depends on whether regulators are successful in blocking it. Before making a choice, traders should carefully analyze the recent success record of antitrust authorities in preventing agreements as well as the legal viability of the arguments made by regulators.
Despite the difficulties involved in mergers and acquisitions, traders must ultimately decide whether they would lay or take the odds the market is providing.