EU commentary on Microsoft-Activision deal should help appeal, Wells Fargo says
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The commentary from the European Union on its approval of Microsoft's (NASDAQ:MSFT) proposed acquisition of Activision Blizzard (NASDAQ:ATVI) surrounding cloud gaming is an "incremental positive" for the tech giant's appeal after the U.K. blocked the deal based on those concerns, Wells Fargo said.
Analyst Brian Fitzgerald, who has an overweight rating on Activision (ATVI) and a per-share price target of $95, noted that the commentary from the European Commission "directly contradicts" the findings from the U.K.'s Competition and Markets Authority.
"In our view, the EU Commission's commentary, which directly contradicts the UK CMA's findings, may help MSFT to make the case that the CMA's decision was based on so flawed an understanding of the cloud gaming market as to make it irrational, though we continue to view MSFT as fighting an uphill battle â one that (between FTC and CMA challenges) could be drawn out over 18+ months," Fitzgerald wrote in an investor note.
Despite that bout of optimism, the CMA has won 67% of all merger appeals since 2010, Fitzgerald added, citing data from Linklaters, a U.K.-based law firm.
In comments approving the deal, Margrethe Vestager, the EC'S EVP Competition Policy, said Microsoft's (MSFT) commitments "represent a significant improvement for cloud gaming as compared to the current situation."
In addition, the EU found that Microsoft (MSFT) would have no incentive to not distribute console versions of Activision (ATVI) games to Sony (SONY), which has repeatedly expressed opposition against the deal. 
The CMA previously narrowed its concern of Microsoft's (MSFT) acquisition of the Call of Duty publisher to focus on cloud gaming and not console gaming.
Microsoft has not signed a cloud gaming deal with Sony, but it has signed deals with Nintendo (OTCPK:NTDOY), Nvidia (NVDA) and others.
Fitzgerald added that the current merger agreement has a July 18 deadline to close the deal and though Activision's (ATVI) management, led by CEO Bobby Kotick, has expressed a commitment to help Microsoft (MSFT) appeal the CMA's ruling, it may be walking away from the $3B breakup fee, thus impacting its cash position.
Both Activision (ATVI) and Microsoft (MSFT) have said the U.K. regulator's ruling is flawed and they intend to appeal.
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