On January 18, 2022, Microsoft (MSFT 1.45%) announced its plans to acquire Activision Blizzard (ATVI) for $95 per share. As of September 16, Activision's share price was $76. That means there's a 25% upside between where Activision is trading now and the buyout price.

Many investors might think this is an excellent opportunity to make a quick buck -- and they could be right. However, investors need to be aware of a few other critical considerations before taking a position in Activision Blizzard's stock.

What's the hold-up?

As with all acquisitions, the deal must be scrutinized by regulators to determine if this acquisition would violate antitrust laws. Microsoft and Activision Blizzard are global businesses, so the deal must go through several regulatory bodies outside the U.S.

The primary concern is that Microsoft may make Activision's content exclusive to its console system, the Xbox. By excluding Sony's PlayStation console from accessing Activision's games, millions of gamers may be forced to switch to Xbox to play games like Call of Duty or Overwatch.

The United Kingdom has launched a deeper investigation into this potential antitrust issue, which may delay the process even more. Microsoft executives have admitted that some games will become Xbox exclusives, but if the business feels a title has a broader reach across multiple consoles, it will leave it as a cross-platform game.

While this may appease some regulators, the real worry is what happens a decade later when Microsoft has slowly squeezed many of the titles to become Xbox exclusives.

This is the primary concern of regulators -- but if the deal is approved, nothing will stop the acquisition.

If the deal goes through

Once the various regulatory bodies approve the deal, Microsoft will be free to buy out Activision shareholders at $95 per share. As mentioned earlier, this would be a quick 25% gain. Not a bad profit for a short holding period.

However, investors must understand that if these shares are owned in a taxable brokerage account, they may be subject to short-term capital gains if they have been owned for under a year. That means any profits from your trade will be taxed as regular income, not long-term capital gains. So you wouldn't lose money, but you'll have to pay more taxes than you would have if you held shares for over a year.

There's also another factor many investors forget about: opportunity cost. Opportunity cost is the "price" you pay for doing one action while you could be doing another. If the deal takes months or even a year to complete, there may have been other investment opportunities that could have netted you a more significant gain. Many stocks of solid, long-term companies are down more than 75% from their all-time highs. An investment in these stocks could yield a much greater return than an Activation Blizzard buyout.

And both of these considerations assume the deal eventually goes through. But what happens if it is blocked?

If the deal fails

Assuming you purchased a position in Activision Blizzard expecting a buyout, if the deal fails you'll be "stuck" holding shares. Now, this isn't necessarily a bad thing -- Activision Blizzard has solid gaming franchises. But poor workplace conditions and bad headlines have plagued the company. Undoubtedly, the company is working on getting its workforce in order, and Microsoft is probably assisting with the culture change in preparation for a buyout.

If the deal fails, these changes won't stop, and the company will be better off. But you also must look at the company's financials, which haven't been pretty lately.

In Q2, Activision's net revenue was $1.6 billion. This is down 28% year-over-year from last year's $2.3 billion value. This falls in line with what happened in Q1, as sales fell 22%. However, Activision's expenses fell in Q2, which allowed it to generate earnings per share of $0.36.

This drop in revenue isn't a good sign, especially considering video game rivals Take-Two Interactive and Electronic Arts grew their revenue by 36% and 14%, respectively, in the same time period. However, this comparison catches Activision on its heels, as it only released one game in Q2. Still, the sales growth of its rivals should dispel any notion that Activision's revenue is only falling because of gamers returning to their normal, pre-pandemic activities.

Although this quarter may have come at a bad time for a game release cycle, Q4 might look different for Activision. The upcoming release of Call of Duty: Modern Warfare 2 and Overwatch 2 in October should help the company's Q4 results. These releases are likely why analysts are projecting revenue growth of nearly 20% in 2023. 

Still, this doesn't look like a company I'd be interested in investing in if regulators took the possibility of a buyout off the table, especially when compared to its rivals. Without legacy games that can consistently drive revenue (like Grand Theft Auto V does for Take-Two), Activision is at the mercy of the gaming community for each release. I'm not a huge fan of uncertainty in my investments, so Activision isn't high on my investment list.

In January, Activision Blizzard traded for about $64 per share. If this deal falls through, I'd guess it would drop lower than that due to the weak results of Activision and the slowing economic environment.

I'm not sure if the deal will go through, but the downside of this investment seems worse (whether it is opportunity cost or the deal getting blocked) than the 25% gain. Therefore, I think a wiser decision would be to look into purchasing Microsoft shares, as the company will do fine if the deal goes through or not.