Analysts are Positive on Activision Blizzard Even if Microsoft’s Acquisition Fails

Analysts are growing more bullish on Activision Blizzard (ATVI), even if Microsoft’s $69 billion deal for the company falls through.  As a result, analysts raised their average 12-month price target for Activision Blizzard to $92.17, almost identical to their $91.95 prediction on January 17, the day before Microsoft announced its takeover of the company. 

A merger-arb specialist at Cowen & Co said if Microsoft’s $95-a-share cash offer for Activision Blizzard fails, the stock may fall back toward $60 a share from last Friday’s closing price of $75.76.  However, Cowen said any decline in Activision Blizzard’s stock prices might not last long as analysts have been raising their earnings estimates for the company, citing the outlook for its Call of Duty and World of Warcraft video games. 

Microsoft’s $60 billion deal for Activision Blizzard faces in-depth antitrust probes in the European Union and UK, as well as heightened scrutiny from the U.S. Federal Trade Commission, which Politico recently reported may file an antitrust lawsuit to block the deal as soon as this month.  Since the January deal announcement, Activision’s stock price has weakened from the low $80s to the mid $70s on the uncertainty regarding the closure of the deal.  However, Cowen & Co said Activision Blizzard’s stock price would jump more than 20% if the deal goes through.

Late Friday, Bloomberg News reported that Microsoft is ready to fight if the U.S. Federal Trade Commission sues to block the deal.  Microsoft has said it expects to close the deal by June 30.  In the five years before the acquisition, the valuation of Activision Blizzard averaged 23 times estimated earnings.  However, that multiple weakened to 16.8 right before Microsoft announced the deal.  Activision shares are priced now at 20 times estimated earnings.

In November, at least six analysts upgraded Activision Blizzard.  Wells Fargo Securities said the market “is undervaluing Activision, with or without a deal,” citing the company’s portfolio of intellectual property, PC player base, and growth opportunity in mobile gaming.  Cowen & Co said the market is pricing in roughly a 35% to 40% probability of the deal closing, and Truist Securities said that even if the deal falls through, Activision Blizzard “should have a big 2023” based on a strong release slate of games. 

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