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Microsoft (NASDAQ:MSFT) Stock: Activision Deal at Risk in the UK

Story Highlights

Microsoft must respond to the UK antitrust regulator’s concerns about the Activision Blizzard buyout deal in order to avoid more scrutiny. MSFT stock could come under pressure if the deal fails, but TipRanks insights show the stock remains investors’ favorite for now.

Microsoft’s (MSFT) plan to acquire videogame developer Activision Blizzard (ATVI) has raised antitrust concerns in the UK. The company has only a few days to offer remedies to address the concerns or face a more in-depth review of the deal. MSFT stock could take a hit if the Activision buyout deal collapses, in part because of the expensive breakup fee.

The UK’s Competition and Markets Authority (CMA) has questions for Microsoft in relation to the Activision takeover. The regulator worries that a merger between Microsoft and Activision could damage competition in the UK’s videogame market. 

The CMA noted that Microsoft is among the top-three gaming console companies, alongside Sony (SONY) and Nintendo (NTDOY). It also noted that Activision has some of the best-selling gaming titles. 

The regulator is concerned that if Microsoft combines with Activision, it could harm rivals, particularly newcomers to the gaming industry. The CMA’s concerns are that Microsoft could damage competition by denying rivals access to Activision’s games or granting them access on unfair terms.

CMA’s Concerns Are Bad News for Microsoft

The regulator has given Microsoft and Activision five business days, or until September 8, to address its concerns. If the CMA is not satisfied with the remedies offered by the companies, then it might escalate the deal’s review. 

An in-depth review comes with many risks. For example, the regulator could impose certain conditions to approve the transaction or block the deal altogether. Moreover, a full merger review can delay the deal’s closing because it may take months to conclude. Aside from the UK, the Microsoft-Activision merger deal is also subject to regulatory approval in the U.S., EU, and China before it can close. Regulators in those jurisdictions may also raise issues like the UK’s CMA.

Microsoft hopes to close the Activision acquisition by June 2023. It counts on the deal to not only bolster its gaming and cloud businesses but also provide it with metaverse building blocks. Microsoft has said that it is ready to work with the CMA to address its concerns. The company would need to pay $3 billion in breakup fee to Activision if the deal fails, according to a Reuters report.

What Is a Good Buy Price for MSFT?

Microsoft shares have dropped about 20% year-to-date. However, Wall Street remains highly bullish on MSFT stock. According to TipRanks’ analyst rating consensus, MSFT stock is a Strong Buy based on 28 Buys and two Holds. The average Microsoft price target of $325.77 implies over 25% upside potential. 

MSFT stock scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

Moreover, Microsoft is a favorite of both Wall Street elites and retail investors. TipRanks’ Hedge Fund Trading Activity tool shows that confidence in MSFT stock is currently Very Positive. Some 147 hedge funds increased their cumulative holdings of the stock by 10.4 million shares in the last quarter.

Furthermore, TipRanks’ Stock Investors tool shows that retail investor sentiment is currently Positive toward Microsoft. In the past seven days, 0.9% of retail portfolios tracked by TipRanks increased their exposure to MSFT stock.

Final Thoughts

Microsoft has many reasons to want to complete the Activision acquisition deal. However, the development in the UK indicates that Microsoft may be required to make certain concessions in order for the purchase to be approved by the antitrust authority. MSFT stock may come under pressure if the deal fails or investors feel that the company is giving up too much to save the deal.

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