Why The $70B Activision-Microsoft Deal Could Hurt Sony

Wedbush Securities analyst Michael Pachter named Activision Blizzard Inc ATVI his top stock for 2022 at the end of December. Those who followed Pachter into Activision are already reaping the benefits, as the stock surged higher by more than 35% Tuesday morning before pulling back.

What Happened: Microsoft Corp MSFT plans to acquire Activision for $95 per share in an all-cash transaction valued at $68.7 billion.

Activision has come under pressure in recent months following reports of sexual misconduct and harassment by some of the company’s executives. Activision CEO Bobby Kotick will continue to serve as CEO until 2023.

How Microsoft Benefits: Activision revenues are expected to total about $8.5 billion to $9 billion, he said, adding that the gaming industry is a $100-billion market. Pachter told Benzinga's "PreMarket Prep" that Activision's revenue concentration isn't great, but it's big enough to have a meaningful impact.

The situation to monitor is Microsoft's anti-competitive initiative with some of Activision's popular games, according to Pachter. Activision has a handful of games that are popular on both Xbox and Sony's SONY PlayStation. If this acquisition goes through, Microsoft could opt to make some of its games exclusive to the Xbox platform, he said.

"If you can't ever play 'Call of Duty' again on the PlayStation, it's going to kill PlayStation sales," Pachter said.

See Also: Could Microsoft Make 'Call Of Duty' An Xbox Exclusive? 3 Scenarios To Consider

The Wedbush analyst noted Microsoft may also be acquiring Activision to enter the mobile gaming market.

"Activision is huge in mobile," he said. "They are going to be $3.5-billion mobile and Microsoft is essentially zero in mobile so that's a big move."

Pachter thinks Activision is worth about $120 per share.

"Microsoft is getting a pretty good value," he said. "I'm more surprised that Activision is accepting it."

Pachter went on to talk about the impacts of the acquisition on the rest of the gaming market and more.

See the full interview here:

ATVI Price Action: Activision has traded as low as $56.40 and as high as $104.53 over a 52-week period.

The stock closed up 25.8% at $82.31. Microsoft's stock closed down 2.4% at $302.65.

Courtesy photo.