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Activision’s Risk-Reward Tradeoff Defies Microsoft Deal Doubt

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Activision’s Risk-Reward Tradeoff Defies Microsoft Deal Doubt

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.

Activision shares climbed 1.2% on Monday, while Microsoft edged lower 0.7%.

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.

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