Wall Street experienced a downdraft in the stock market early Friday, as investors reacted negatively to ongoing signs that the global banking system isn't necessarily in perfect health. Shortly after the open, the Dow Jones Industrial Average (DJINDICES: ^DJI) was down almost 200 points, and other major market benchmarks were down similar amounts on a percentage basis.
However, shareholders in Activision Blizzard (NASDAQ: ATVI) weren't disappointed with the way the day began, as the video game design specialist saw its stock move higher. That move came amid news regarding Microsoft's (NASDAQ: MSFT) ongoing attempts to acquire Activision Blizzard, and the odds of a successful combination actually taking place appeared to be on the rise along with the shares. The reaction rippled throughout the video game stock space as well, raising some interesting prospects for investors in the arena.
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The U.K. gets more comfortable with Activision-Microsoft
Shares of Activision Blizzard climbed 6% at the open of regular trading Friday morning. The rise followed a release from U.K. regulators regarding their views on Microsoft acquiring the video game maker.
The Competition and Markets Authority said early Friday that it believes the merger would not be harmful to competition with respect to video game consoles, making specific reference to the potential for Microsoft to limit distribution of Activision Blizzard video games to purchasers of its Xbox console. According to the Competition and Markets Authority, it wouldn't be financially smart for Microsoft to make hit games like Call of Duty exclusive to Xbox, because it would still have a huge financial incentive to sell the games to users of rival consoles like Sony's PlayStation.
To be clear, though, U.K. regulators didn't issue an all-clear on the deal as a whole. There have also been fears that as the video game industry relies more heavily on cloud distribution, Microsoft's power in cloud infrastructure could exercise a competitive threat that would justify blocking the acquisition or forcing the parties to change the terms of the agreement. That's been the basis for Microsoft offering licensing deals for key game franchises to rivals, with the expectation that doing so would address regulatory concerns. The Competition and Markets Authority expects to make a final decision by late April.
In addition, regulators in other countries are still looking at the competitive impacts of the deal and haven't yet given their approval. That includes European Union and U.S. regulatory agencies.
Setting up for the win
With the move, the stock closed a significant portion of the discount to the value of the $69 billion deal, which would pay Activision Blizzard shareholders $95 per cash if it goes through. Investors have been looking at arbitrage opportunities ever since the two companies announced the acquisition more than a year ago in early 2022.
It also appeared that getting one stop closer to approval of an Activision Blizzard deal made some investors consider whether rival video game makers could end up becoming acquisition targets, either by Sony or other companies in the space. Shares of Electronic Arts and Take-Two Interactive Software were both up between 1% and 2%. It would certainly be interesting if mergers and acquisitions activity started to heat up more broadly among video game stocks.
Even with Activision stock rising, though, there's still nearly a $10-per-share gap between where it's trading now and the price Microsoft is willing to pay. That suggests there could be a lot more news between now and whenever a final resolution eventually gets reached.
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Dan Caplinger has positions in Microsoft. The Motley Fool has positions in and recommends Activision Blizzard, Microsoft, and Take-Two Interactive Software. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.
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