NTDOY - Activision rises as Moffett Nathanson upgrades citing discount to Microsoft offer

Activision Blizzard ( NASDAQ: ATVI ) shares rose on Monday as investment firm Moffett Nathanson upgraded the video game maker, noting the roughly 20% discount to Microsoft's ( NASDAQ: MSFT ) offer and the fact that there is a "strong rationale" for why the deal should go through.

Analyst Clay Griffin moved his rating on Activision Blizzard ( ATVI ) to outperform, noting that the discount between Microsoft's ( MSFT ) offer of $95 per share in cash and where Activision Blizzard ( ATVI ) is currently trading "represent an uncorrelated market opportunity that, in our view, is worth an upgrade."

Griffin noted that in the six months since the deal was announced, the merger arb spread, or the difference between where Activision Blizzard ( ATVI ) is trading and Microsoft's ( MSFT ) offer price has been between 15% and 22%, which is seen as "wide," given the parties involved.

Activision ( ATVI ) rose fractionally to $79.45 in premarket trading, while Microsoft gained slightly more than 0.5%.

And while this version of the Federal Trade Commission, under Lina Khan, has been more active in investigating deals and in some cases, blocking them -- like with Nvidia ( NVDA ) and Arm -- Microsoft ( MSFT ) has complied with the FTC's requests, most recently responding to a request for certified substantial compliance.

That puts the FTC on a 30-day time period and though the FTC is not bound by that limit, it could still challenge the deal. It's also possible that a "rigorous review" from the FTC "would be quite the feather in Microsoft’s cap" and may lead to other regulators around the world approving the deal.

"No, we don’t think the timing of resolution is necessarily imminent," Griffin wrote, adding that it's also "not wrong to suggest that the Microsoft-Activision deal is entering its final stage."

The analyst also noted that this particular deal has not caused a lot of "political heat" from Washington, with most of the concerns surrounding labor and as such, "calm" when compared to other deals.

Griffin also pointed out that the Communications Workers of America sent a letter to the FTC last month supporting the deal after Microsoft ( MSFT ) struck a deal with them.

In Griffin's eyes, it's likely that Activision ( ATVI ) is acquired by Microsoft ( MSFT ) as the analyst said "it’s difficult for us to see" how it could "inexorably alter" the video game market and let Microsoft ( MSFT ) run over companies like Sony ( SONY ) and Nintendo ( OTCPK:NTDOY ).

In February, Berkshire Hathaway ( BRK.A ) (BRK.B.) took a 14.7M share stake in Activision ( ATVI ) due to the offer price discount .

Analysts have been largely positive on Activision Blizzard ( ATVI ). It had an average rating of BUY from Seeking Alpha authors , while Wall Street analysts rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates ATVI a HOLD .

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