It's been almost a year and half since Microsoft (MSFT 1.82%) made its acquisition bid for Activision Blizzard (ATVI), and the two companies have faced an uphill battle in their efforts to merge ever since. Until now, it has seemed as though there was a good chance that the deal would never go through, given regulatory obstacles that seemed insurmountable.
Yet in one fell swoop, it now appears that nearly all of the barriers to getting the Activision-Microsoft merger done have disappeared. That has caused the video gaming stock to soar, and that could have competitive ramifications across the industry.
A huge turnaround from Activision-Microsoft
It was only a couple of months ago that many investors had decided that the Activision-Microsoft deal was likely dead. The Competition and Markets Authority (CMA), which is the primary regulatory body in the U.K. charged with assessing potential monopolistic and anticompetitive threats, seemed to put the brakes on the deal. The CMA observed that it believed allowing the two companies to join forces would lead to reduced innovation in the video game space, adversely affecting choices available for video game enthusiasts.
Moreover, the CMA had largely rejected the notion that concessions Microsoft had already offered in order to get a deal done would be enough to ease its concerns. As a result, shares of Activision had plunged, reflecting a high likelihood that the company would have to go it alone.
Getting a key ruling in U.S. courts
Yet on Tuesday, the Activision-Microsoft deal got a shot in the arm. The judge overseeing the lawsuit from the U.S. Federal Trade Commission in the U.S. District Court for the Northern District of California trying to block the merger with an injunction ruled against the regulatory agency, finding that the FTC had failed to establish its likelihood of winning if it chose to take Activision and Microsoft to a trial. In particular, Judge Jacqueline Scott Corley said that the FTC had failed to make its case concerning any impact on competitive conditions in the video game console, subscription services, or cloud video gaming markets.
Shares of Activision jumped 11% in response as of early Tuesday afternoon to around $92 per share. That's still less than the $95-per-share cash offering price in Microsoft's original proposal from January 2022, but the gap narrowed significantly following the U.S. court decision.
Of course, the U.S. can't undo the decision from the U.K.'s CMA. However, U.K. regulators agreed to a pause in their litigation against the two companies, stating that they stand ready to consider further efforts to adapt the deal to assuage their concerns.
A done deal?
Given the contraction in the gap between the current share price and the offering price, many shareholders appear to have concluded that the merger is highly likely to go through. That became more likely back in mid-May, when regulators in the European Union approved the deal despite the U.K.'s previous concerns.
Yet procedurally, the FTC isn't done yet. Microsoft and Activision hope to close on their merger on July 18, assuming they can negotiate successfully with the CMA. However, the court's rejection of the FTC's efforts to get an injunction doesn't stop the FTC from moving forward with litigation. Nevertheless, it seems more likely that the FTC will join U.K. regulators in seeking further concessions rather than blocking the deal outright.
A happy ending?
In any event, consummating a deal would finally end speculation about whether Activision might be better off on its own. Moreover, by bringing Call of Duty and other popular Activision game franchises under Microsoft's umbrella, it could help with gaming-related artificial intelligence integration that could mark the next step in the evolution of the industry. That won't help Activision shareholders, but investors in Microsoft might get the best reward in the end.
