Microsoft Completes Activision Deal, Faces $28.9 Billion Tax Claim
Microsoft seals the deal with Activision
Microsoft has successfully finalized its merger with Activision Blizzard, marking its largest deal in history. Despite facing regulatory scrutiny and delays, the transaction has been completed, with Activision Blizzard now operating as a wholly owned subsidiary of Microsoft. The U.K.’s Competition and Markets Authority has approved the buyout, excluding cloud gaming rights, stating that it will maintain competitive pricing and improve services. However, the U.S. Federal Trade Commission continues to oppose the pact and will appeal against it.
IRS claims $28.9 billion in back taxes
In a separate development, Microsoft has revealed that the Internal Revenue Service (IRS) has issued a back-tax claim of $28.9 billion, along with penalties and interest, for the tax years 2004 to 2013. This dispute stems from how Microsoft allocated profits across different countries and jurisdictions during that period. The company intends to appeal the claim, and it does not anticipate any immediate changes in its tax liabilities as the IRS Appeals process is expected to take several years to complete.
Arm Holdings receives positive ratings
Arm Holdings, the chip designer, has garnered favorable ratings from several major brokerages following its recent IPO. Arm’s underwriters have initiated coverage of the company, citing optimism around its plans to generate revenue through elevated royalty fees and its focus on building its presence in the cloud and automotive markets. Analysts believe these strategic shifts and higher royalty rates will accelerate Arm’s revenue growth and expand its valuation premium. Price targets range from $60 to $70, with Deutsche Bank and Goldman Sachs among the most bullish.
Netflix downgraded by Wolfe Research
Streaming giant Netflix has been downgraded to Peer Perform from Outperform by Wolfe Research. The downgrade is based on concerns about future growth and revenue per user expectations. The analysts believe that Netflix’s 2024 ARPU expectations are too optimistic and that today’s paid-sharing net adds will lead to gross add shortfalls in the future. The firm’s prior bullish thesis was built on the expectation of a transition to a more efficient phase, but slow adoption of ad-supported video-on-demand and recent ARM shortfalls have impacted sentiment.
Overall, Microsoft’s completion of the Activision deal and its ongoing tax dispute with the IRS, along with Arm Holdings’ positive ratings and Netflix’s downgrade, have made for an eventful week in the tech industry.
