Things were quiet in the stock market on Black Friday, as many investors took the day off as part of their Thanksgiving holiday. The Nasdaq Composite (^IXIC 0.65%) was down about half a percent about halfway through the holiday-shortened trading session, underperforming other indexes.

There was also relatively little company-specific news among U.S. stocks, as most businesses didn't choose to try to report financial results or make major announcements during the holiday break. However, investors in Activision Blizzard (ATVI) got their first chance to react to reports that surfaced just before Thanksgiving Day suggesting that the federal government might take a closer look at the proposal from Microsoft (MSFT 1.22%) to acquire the video game maker.

Activision falls further

Shares of Activision Blizzard were down more than 4% on Friday, putting it among the worst performers in the Nasdaq-100 index for the day. The move lower came following a report that Activision and Microsoft might have to face litigation concerning their proposed merger, made back in January.

Late Wednesday, a Politico report stated that the Federal Trade Commission will likely file suit in an attempt to block Microsoft's purchase of Activision. Politico's sources tried to make it clear that a lawsuit wasn't a foregone conclusion and that members of the FTC hadn't yet taken formal action to move forward with litigation. However, after having done a long and involved investigation of the antitrust issues involved with the acquisition, staff members at the FTC are reportedly unconvinced by the arguments that Microsoft and Activision have put forward to justify the merger.

The potential problem from an antitrust standpoint is that the merger brings together one of the top video game console manufacturers and a leading maker of video game content. Microsoft rival Sony (SONY -0.19%) and its Sony Interactive Entertainment division have argued that the threat to competition is substantial, in particular if Microsoft were to limit the distribution of hit Activision Blizzard game franchises like Call of Duty to its Xbox and exclude Sony's PlayStation console from having access.

For its part, Microsoft has anticipated those objections and offered to allow Sony to keep access to Call of Duty games in the future. However, the broader worry is that Microsoft could somehow use its stronger position with Activision to gain leverage that would have anti-competitive effects.

Confirming investor skepticism

News of a potential FTC lawsuit doesn't really come as a surprise to anyone who has followed Activision's stock during 2022. Ever since the announcement of the merger 10 months ago, shareholders have appeared skeptical at best about the prospects of the Microsoft purchase of Activision to go forward.

Under the original terms of the acquisition, Microsoft offered $68.7 billion in cash for Activision. That worked out to about $95 per share, which was a more than 40% premium to the $65 share price that Activision fetched immediately before the offer. In acquisitions where antitrust factors aren't as issue, stock prices often jump very close to whatever the cash amount offered is.

With the Microsoft buyout offer, though, Activision shareholders got a muted response. Immediately following the offer, the stock rose to just under $87 per share, a 9% discount to the purchase price. However, by the end of that first trading day, the stock was below $82. Since then, shares have stayed in the $70s and lower $80s, rising and falling along with rumors and reports of whether the deal will ever get done.

Arbitrage isn't free money

Many investors have touted the idea that you could buy Activision Blizzard stock at a big discount to the $95 buyout price and eventually make a huge profit. That's certainly true if the deal goes forward, but that's far from guaranteed.

In some ways, the deal has always been in danger, and given the stock's reaction, investors have always known it. Those who buy Activision at current levels need to be comfortable with the potential outcome that the video game maker will remain independent well into the future.