Microsoft (NASDAQ:MSFT) had a big win yesterday after a California District Court judge denied the FTC’s request to stop its acquisition of Activision Blizzard. Microsoft intends to acquire the maker of blockbuster video games such as Call of Duty and Candy Crush for $69 billion.
After listening to arguments from both the FTC and the tech giant, Judge Jacqueline Scott Corley chose to deny the regulator’s plea for a preliminary injunction. The FTC argued that Microsoft would probably pull Call of Duty from rival consoles, but that argument was rejected by the judge who pointed to an executed agreement between Microsoft and Nintendo, in which Microsoft has guaranteed to provide the title for the next decade. Moreover, the judge stated Microsoft would not have any financial motivation to remove competitors’ access to the game. This was emphasized by mentioning that the agreement approved by Microsoft’s board included generating revenue by selling Activision titles on other gaming platforms.
The decision is not only a good one for Microsoft and Activision but a very bad look for the regulator, says Wedbush analyst Dan Ives.
“This is a major black eye for the FTC and anti-tech Chair Lina Khan as this case in the eyes of many in the industry and the Street never had merit to block the deal,” noted the 5-star analyst. “Furthermore, we believe the floodgates now could open for Big Tech to do more M&A looking ahead as this ruling was also an important victory for the broader tech industry that will be felt in the Beltway for years to come.”
Since the injunction has been denied, Microsoft can now move forward with finalizing the deal before July 18. This deadline is significant because if the deal extends beyond that date, Microsoft would be obligated to pay Activision $3 billion and would need to renegotiate the terms of the deal, and gain approval from the Activision board for a new price. Ives, then, expects the deal to close by next Tuesday. “Activision was a key asset for Microsoft to own and this should catalyze its consumer franchise,” he summed up.
Meanwhile, Ives maintained an Outperform (i.e., Buy) rating on MSFT shares, backed by a $375 price target. There’s potential upside of 11% from current levels. (To watch Ives’ track record, click here)
Turning now to the rest of the Street, where Microsoft’s Strong Buy consensus rating is based on 30 Buys, 4 Holds and 1 Sell. However, the upside appears capped as the $350.29 price target suggests the shares will stay rangebound for the foreseeable future. (See Microsoft stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
