Activision’s Risk-Reward Tradeoff Defies Microsoft Deal Doubt

tech.hindustantimes.com:

For analysts following Activision Blizzard Inc., it's almost as if the video-game company never decided to sell itself to Microsoft Corp. for $69 billion.

As investors increasingly doubt whether the deal will survive antitrust scrutiny, Wall Street brokerages have been growing more bullish on Activision's standalone prospects. Their average 12-month price target for the stock is $92.17, almost identical to their $91.95 prediction on Jan. 17, the day before Microsoft shocked the market with the takeover announcement.

Should Microsoft's $95-a-share cash offer fail, arbitragers tend to see the stock dropping back toward $60, where it traded before the bid, said Aaron Glick, a merger-arb specialist at Cowen & Co., from $75.76 Friday. Yet it might not stay there long: Analysts have been raising earnings estimates the past month, citing the outlook for its Call of Duty and World of Warcraft franchises. And the stock would jump more than 20% if the deal does go through.

“You can see why people would see this as a favorable risk/reward, with or without a deal,” said Ralph Rocco, portfolio manager at Gabelli Funds, which owns Activision shares. “We see limited fundamental downside and a decent amount of upside if the deal goes through.”

Since the January deal announcement, Activision's stock has weakened from the low $80s to the mid $70s. The transaction faces in-depth antitrust probes in the European Union and UK, as well as heightened scrutiny from the Federal Trade Commission in the US, which Politico reported is likely to file a lawsuit to block the sale.

Microsoft is ready to fight if the US sues to block the deal, Bloomberg News reported late Friday, citing a person familiar with the matter said. Microsoft, which has