Analyst Recommends Buying Activision Stock Amid Microsoft Deal Uncertainty

Activision Stock

Activision Stock (NASDAQ:ATVI)

United First Partners recommends buying Activision (NASDAQ:ATVI) despite growing concern that authorities may reject Microsoft’s (NASDAQ:MSFT) $69 billion takeover of the video game giant. As a result, Activision stock surged.

UFP’s Larry Feldman wrote in a note on Wednesday that activist investors may try to put pressure on Activision because the company stands to receive a $3 billion reverse termination fee for the Microsoft deal on April 18—just days before the UK’s Phase 2 deadline for its review of the deal expires on April 26.

This statement follows reports earlier this week that Activision stock may have retained Morgan Stanley to defend against activist investors. Early this month, Morgan Stanley imposed a trading restriction on ATVI for unknown reasons. On Tuesday, CNBC’s David Faber speculated that the bank might have been recruited to counteract activist investors. He added that activist Elliott was touted as a probable candidate.

The presence of an activist “may assist guarantee ATVI management stays focused on producing excellent returns for its shareholders and that smart capital allocation choices are made during a failed-MSFT transaction scenario,” Feldman wrote. The fact that ATVI engaged a new adviser in the days leading up to the 2023 board nomination window beginning on February 13 (the nomination process ends on March 15) lends credence to our opinion.

UFP’s Feldman speculates that an activist investor would step in to ensure that ATVI uses its “large” net cash position and the anticipated $3 billion from the reverse termination fee to restore money to investors in a “quick and orderly” manner.

UFP reassessed the underlying value of Activision, resulting in an equity value of $83 per share based on the assumption that the business would repurchase 10% of its outstanding shares of basic stock between the second quarter and the fourth quarter for a total cost of $6 billion. Applying a DCF methodology, ATVI’s DCF-implied equity value is ~$86 a share.

On the same day, Microsoft and Activision had a closed-door session with European Union authorities to discuss whether or not the merger raised too many anti-competitive issues.

Featured Image: Megapixl @ Selagin

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