Win Over FTC Should Allow Microsoft To Close Acquisition of Activision

Senior Equity Analyst

Neil Macker

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Blizzard

King

Activision

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Activision Blizzard is one of the world's largest third-party video game publishers and owns some of the largest and well-known video game franchises, including Call of Duty and World of Warcraft. We believe the firm is well placed to consolidate its leading position by developing compelling new versions of its existing franchises and by introducing new experiences, such as Overwatch. We expect Activision to continue to benefit from ongoing console demand, the ongoing revitalization of PC gaming, and the growth in the mobile market via King. 

Activision Blizzard’s sale to Microsoft remains pending as a few jurisdictions continue to scrutinize the deal. However, recent developments, including a U.S. court’s blocking of a preliminary injunction by the U.S. Federal Trade Commission and Microsoft’s agreement to halt litigation in the U.K. in order to restructure the deal, point to the deal closing in the near future. 

Activision has capitalized on the shift in the industry toward a bifurcated market consisting of major AAA blockbuster titles on one side and smaller indie games on the other side. Activision generally focuses on the higher end of the market, using its capital to fund higher-budget blockbusters and its marketing scale to support its titles across multiple advertising platforms. Activision's primary competition remains other large third-party publishers, such as Take-Two and EA, as well as console manufacturers (and first-party publishers) Sony and Microsoft.

Like its peers, the firm is focused on engaging users beyond the initial game sale via extending the monetization window by expanding the use of multiplayer options and releasing downloadable content. Both methods encourage gamers to hold on to the original game longer than in previous generations and provide an income stream from consumers who purchase the game secondhand. Activision has used DLC and multiplayer to extend the life of multi-billion-dollar franchises such as Call of Duty, and we believe franchises like Hearthstone and Overwatch can also maintain long-term success.

Business Strategy & Outlook

We assign Activision a narrow moat. Activision Blizzard is one of the world's largest third-party video game publishers and the firm behind some of the most compelling and lucrative franchises of all time. Over the last 15 years, the video game industry has undergone a number of changes including two console generation transitions; the rise of digital downloads; widespread adoption of mobile games; and the expansion of the free-to-play, or F2P, business model. Over this same period, Activision (the predecessor company) has transitioned from a console-based video game publisher to the one of the largest publishers on both consoles and the PC via the 2008 merger with Blizzard (then owned by Vivendi). The firm owns six core franchises that have grossed over $1 billion in revenue--World of Warcraft, Call of Duty, Diablo, StarCraft, Overwatch, and Hearthstone.

Its portfolio of widely successful franchises allows the firm to monetize its intellectual property year after year by delivering content via sequels, expansion packs, downloadable content, or DLC, and toys, exemplified by the decade-old World of Warcraft franchise and the annual versions of Call of Duty. These franchises can also spawn games that move the company into new arenas such as F2P (Hearthstone from WoW) and mobile (Call of Duty Mobile). The company's franchises have a dedicated user base, providing Activision with the leverage to push more of its games via direct digital channels thus bypassing retailers, generating higher gross margins and improving returns on invested capital.

We believe that the console and PC video game market will continue to largely fragment into two tiers: AAA games with large budgets and indie games with small budgets. Activision’s size and the depth of its franchise slate allow the firm to place larger bets on new IP than many smaller midsize competitors. This ability to make larger investments marks the publisher as one of a few destinations for studios looking to develop new large-budget AAA games.

Narrow

Economic Moat

Activision Blizzard

King Digital Entertainment is a social games development company. King develops games for the web, for mobile (iOS, Android, Windows Phone), Facebook, and Windows 10. King gained fame after releasing the cross-platform title Candy Crush Saga in 2012, considered the first successful game utilizing the freemium model. King was acquired by Activision Blizzard in February 2016 for $5.9 billion, and operates as its own entity within that company.

King Digital Entertainment

Activision is an American interactive entertainment company. Headquartered in Santa Monica, California and founded in 2008 through the merger of Vivendi Games and Activision, the company is traded on the NASDAQ stock exchange under the ticker symbol NASDAQ: ATVI, and since 2015 has been one of the stocks that make up the S&P 500. Activision Blizzard currently includes five business units: Activision, Blizzard Entertainment, Major League Gaming, Activision Blizzard Studios, and King Digital Entertainment.  Some of their popular games include: World of Warcraft, StarCraft, Diablo, Hearthstone, Heroes of the Storm, Overwatch, Call of Duty,  kylanders, Destiny, Candy Crush Saga, Candy Crush Soda Saga, Candy Crush Jelly Saga, Farm Heroes Saga, Pet Rescue and Bubble Witch.

Major League Gaming is a professional eSports organization. MLG is headquartered in New York City, New York and was founded in 2002 by Sundance DiGiovanni and Mike Sepso. MLG has held official video game tournaments throughout the United States and Canada. The Boost Mobile MLG Pro Circuit was a television broadcast of Halo 2 MLG tournaments in 2006 and 2007, ESPN.com, and other broadband sites. The company has also been involved in television production, and game development. MLG's aim is to elevate computer and console game tournaments to viable competitive and spectator events.

Major League Gaming

Activision Blizzard, Inc. engages in the development and publication of entertainment content and services. It operates through the following segments: Activision Publishing Inc., Blizzard Entertainment Inc., and King Digital Entertainment. The Activision Publishing Inc. segment delivers content through both premium and free-to-play offerings, as well as by licensing software to third-party or related-party companies that distribute Activision products. The Blizzard Entertainment segment is engaged in delivering content through both premium and free-to-play offerings, and by licensing software to third-party or related-party companies that distribute Blizzard products. The King Digital Entertainment segment is focused on delivering content through free-to-play offerings and generates revenue from in-game sales and in-game advertising on the mobile platform. The company was founded in 1979 and is headquartered in Santa Monica, CA.

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My goal is to build a portfolio generating 4-5% in yield across 15 positions. My current yield is at 4.81%. All dividend growth is coming from the stocks and not from any additional capital being added to the account.

Adding More Of Telus - May Dividend Income Report

Microsoft NASDAQ: MSFT just hit another snafu in its proposed acquisition of Activision-Blizzard NASDAQ: ATVI. This time, the FTC requested an emergency court order to block the merger, which a California judge granted.

Microsoft and Activision Merger: More Regulatory Roulette

The record-breaking sales provide small solace as the company faces a pending battle with the Federal Trade Commission over a planned acquisition by Microsoft.

Diablo IV crosses $666 million in sales in five days, a record for Activision Blizzard

Microsoft's planned $69 billion purchase of video game company Activision Blizzard was blocked by a federal judge Tuesday, giving more time for an antitrust review of the deal.

Microsoft's planned Activision Blizzard merger temporarily blocked by US judge

The court has set a date of June 22 and 23 for a hearing on the FTC's preliminary injunction, seeking to halt the deal.

Federal Court Grants Temporary Restraining Order To Halt Microsoft-Activision Blizzard Deal

Microsoft Corporation (NASDAQ:MSFT)'s takeover of Activision Blizzard Inc (NASDAQ:ATVI) has been blocked in the United States after regulators urged the deal be stopped in court on Monday. Judge Edward Davila agreed with the Federal Trade Commission's (FTC) argument that it was “necessary to maintain the status quo,” after reports emerged that the companies may press ahead with the merger regardless of a block by UK regulators.

Microsoft Activision merger block approved by US judge

A US regulator has succeeded in a bid to temporarily block Microsoft's £55bn takeover of video game maker Activision Blizzard, preventing the deal being completed this week.

Microsoft's £55bn Activision takeover blocked by US court pending hearing

Federal Trade Commission secures delay of $69bn deal which it argues would be anti-competitive

Activision Blizzard: US judge blocks takeover by Microsoft until further hearings

A US judge late on Tuesday granted the Federal Trade Commission's (FTC) request to temporarily block Microsoft Corp's acquisition of video game maker Activision Blizzard and set a hearing next week.

US judge temporarily blocks Microsoft acquisition of Activision

A federal judge late Tuesday approved a request by the Federal Trade Commission to temporarily block Microsoft Corp.'s $69 billion acquisition of Activision Blizzard Inc.

Judge temporarily blocks Microsoft's $69 billion purchase of Activision

The Federal Trade Commission (FTC) is reportedly planning to block Microsoft's $69 billion purchase of video game maker Activision Blizzard, maker of best selling game Call of Duty.

FTC stalling Microsoft's $69 billion Activision deal

Microsoft Corporation (NASDAQ:MSFT)'s bid to buy video game developer Activision Blizzard Inc (NASDAQ:ATVI) faces another hurdle after US regulators moved to block the deal on Monday. In a legal challenge filed in a San Francisco district court, the US Federal Trade Commission argued Microsoft and Activision were set to complete the merger despite a block by the UK.

Microsoft Activision Blizzard deal faces block in US

The Federal Trade Commission has sued to block Microsoft from completing its deal to buy video game company Activision Blizzard, the latest antitrust challenge to the proposed merger but one that could hasten a conclusion to the drawn-out dispute.

FTC sues to block Microsoft's takeover of video game maker Activision Blizzard

The U.S. Federal Trade Commission filed a complaint in court Monday to block Microsoft's acquisition of video game developer Activision Blizzard.

FTC files injunction to block Microsoft's Activision Blizzard acquisition

Federal Trade Commission opposes purchase, which would be largest in video-game industry history, on antitrust grounds

US regulators move to block Microsoft's $69bn Activision Blizzard deal

Activision Blizzard stock is currently trading at a discount from Microsoft's target acquisition price, with an 18.72% upside from current prices if the Microsoft deal were to go through. The market isn't pricing in a particularly high probability for the acquisition, and it also doesn't seem to be pricing in this quarter's Diablo release. Looking at the full picture, ATVI appears better positioned for upside rather than downside overall. While the acquisition process is driving volatility in both directions, Diablo represents upside.

Activision Blizzard: Diablo Should Make For A Good Quarter, Acquisition Uncertainty Aside

The massive deal could bring more games to your Xbox. But what about the Nintendo Switch and PS5?

FTC Reportedly Set to File Injunction to Block Microsoft Activision Deal: What to Know

The FTC on Monday filed a temporary restraining order and preliminary injunction seeking to block Microsoft's proposed acquisition of Activision Blizzard.

FTC files to block Microsoft-Activision Blizzard deal

Microsoft's proposed $68.7 billion acquisition of Activision Blizzard has received a mixed response from regulators around the world, but the Federal Trade Commission may be its biggest critic. The agency has reportedly applied for an injunction to prevent the deal going ahead before its own official judgment on the situation later this year.

FTC reportedly seeks injunction to stop Microsoft's Activision Blizzard deal

The FTC has reportedly filed for an injunction to temporarily block Microsoft's $68.7B acquisition of Activision Blizzard.

FTC seeks injunction to block $68.7B Microsoft acquisition of Activision Blizzard

The Federal Trade Commission plans to file in federal court to prevent Microsoft and Activision-Blizzard from closing their $69 billion merger, according to a person familiar with the matter.

FTC to seek federal court order temporarily blocking Microsoft-Activision deal

FTC blocking Microsoft's $69 billion Activision deal

The agency had sued to block the blockbuster deal last year. Its latest move in federal court would prevent the acquisition from being completed.

F.T.C. Said to Plan to Sue to Stop Microsoft's Activision Deal From Closing

The FTC plans to file for a temporary restraining order on Monday, The Wall Street Journal reports.

FTC to Seek Restraining Order to Block Microsoft's Activision Purchase: Report

A judge would need to agree to issue the time-limited order; there is no guarantee when or if the agency will file for the request.

News for Activision Blizzard Stock (ATVI)